mBank-CASE Seminars Proceeding No. 166: Why We Still Need Free Trade and Globalization
The increasingly tense interplay between trade and politics should not blind us to the fact that the postwar liberalization of trade worldwide has been a resounding success and remains one of globalism’s most significant achievements, if not the most important achievement, period. This opening up did not happen spontaneously in an institutional vacuum. Instead, the current degree of economic openness and the resulting prosperity are results of a combination of multilateral trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO), underwritten largely by the United States, as well as a variety of regional initiatives.
The existing platforms for trade liberalization - WTO, regional trade blocs, and other preferential trade agreements (PTAs) - have their weaknesses. One is that the low-hanging fruit of slashing tariffs and removing quotas has been mostly picked. The remaining trade barriers revolve around politically thorny issues related to technical and regulatory questions, intellectual property, and distorted agricultural markets. In addition, the one-way nature of WTO membership has been subject to abuse by state-capitalist economies, particularly China, which has gained access to Western markets while jealously shielding its incumbent firms from foreign competition.
However, giving up on the institutions underpinning the current trade regime would be extremely unwise, particularly at a time of historically unprecedented economic distress accompanying the COVID-19 pandemic. Without the constraints imposed by the WTO and PTAs, nothing would stop politicians from reverting back to trade policies that cater to special interests while distributing the costs over the wider public. As the example of the Great Depression shows, such danger would be imminent in bad economic times when the temptation to impose discriminatory trade barriers would be strong and doing so would amplify the size of adverse economic shocks. A zero- or negative-sum economic environment provides fuel for extremist ideologies, militarism, and war. Avoiding such a scenario is precisely the challenge facing the world today.
Author: dr. Dalibor Rohac