Young FoEE

In Defence of Free Trade

The march towards free trade has been strong and steady since the end of World War II. The removal of tariffs and non-tariff barriers were seen as an increasingly desirable way to encourage countries to cooperate and to develop new economic opportunities. Indeed, the creation of the European Coal and Steel Community (ECSC), comprising West Germany, France, Italy, Belgium, Luxembourg and the Netherlands, was a key aspect of attempts to build a lasting peace after the devastating effects of global warfare. The subsequent evolution of the ECSC into the European Union (EU), involving of 28 members (for now), is a testament to the success of the project and the utility of free trade in binding states together.

The positives of free trade are clear. Lower barriers on imports and exports have a vast array of benefits both for firms and citizens. For firms, it means a range of new markets to export their goods to, which is often made cheaper by the removal of tariffs. This creates a wider customer base and possibilities to expand and become genuinely global in nature. For citizens, free trade encourages greater competition among firms in a global market. This both increases innovation, which leads to better products whilst also driving prices down as firms vie to attract business. Trade also brings the prospect of purchasing goods from different parts of the world, which individuals may not have had access to without the hefty price of a long-haul flight. Crucially, free trade has also significantly benefited millions of people in developing economies by giving them the chance to sell their commodities on the global market, vastly raising living standards.

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Image courtesy of Young FoEE, © 2014, some rights reserved.

Aside from purely economic benefits, free trade can also be politically advantageous. The idea that free trade encourages states to cooperate and reduces the likelihood of violence or war is a strong one. Similarly, if states that are firmly plugged into the global economic system breach international law, sanctions can be imposed (as opposed to military action). This was the case with Iran’s nuclear talks with the P5+1 (China, France, Russia, the UK, the US, and Germany). States that have efficient economies and are benefitting from internationalism have much less reason to disrupt global society.

If free trade is such a virtue, then what is the issue? This year, twelve Pacific Rim states, including the US and Japan, ratified the Trans-Pacific Partnership (TPP), one of the world’s most comprehensive free trade agreements. Despite this, the future of free trade looks less certain. In October, the Belgian region of Walloon, with a population of under four million, blocked the Comprehensive Economic Trade Agreement (CETA) between the EU and Canada. Though issues were overcome after marathon talks between Walloon and the Belgian government, the delay was nevertheless an embarrassment for the EU, which had spent seven years negotiating the project. This highlights an issue with free trade deals: their sheer scale and complexity and political undercurrents. Negotiations of trade deals are immensely detailed and technical, with specifications of thousands of products having to be reviewed and standards assured. Indeed, Canadian Prime Minister Justin Trudeau vented his frustration at the delay by saying that Canada is as European in values as it gets. If the EU struggles to do a deal with Canada, with whom can it do a deal?

Such an issue inevitably raises questions regarding the UK’s future trading relations following the vote to leave the EU, which controls the world’s largest single market. Though the UK government has taken a proactive approach to trade, including the creation of a Department for International Trade, it is rumoured that intent to remove the UK from the European Single Market, as part of Brexit negotiations, is at odds with broader national feeling. Simple economics under the widely accepted gravity model suggests the size of a market and its proximity are the driving factors in trade volumes. The UK’s decision to leave the closest and largest market in favour of deals with Australia is economic lunacy.

This paradox highlights the issue with free trade within the EU – it comes packaged with freedom of movement. The Brexit vote was essentially a vote against immigration. Many voters, their prosperity damaged by globalisation and wages undercut by Eastern European migrants, have come to fear anything foreign. Hearing migrants speaking in a foreign language on a bus is an obvious sign of such foreignness. Free trade is a subtler sign, but comes from the same feeling. Why open-up to companies from abroad when people need jobs here?

Such a mentality is mirrored in the rhetoric of Republican US Presidential nominee Donald Trump, who advocates building a wall on the border with Mexico, deporting millions of long-term settled undocumented migrants and has previously called for a blanket ban on Muslims entering the US. Mr. Trump’s outlandish policies aside, it is partly understandable why many individuals take such a view towards immigration, and subsequently free trade. Workers, who have watched the decline in the manufacturing industry as jobs drain away to developing nations, feel threatened by such seismic economic shifts. To them, closing the borders to protect jobs and declining industries is not just sensible, but is essential to ‘Make America Great Again,’ the slogan of the Trump campaign. They do not recognise the understated benefits to the wider economy such as lower prices, higher growth and increased tax revenue. This is the fault of governments, not open trade policies.

Sadly, it seems that protectionist attitudes have won over politicians of all stripes in the US. Both Trump and Clinton, the frontrunner and Democratic nominee, oppose the proposed Transatlantic Trade and Investment Partnership (TTIP) with the EU. This is hardly surprising from Trump given that he has threatened to start a trade war with China if elected in November. (It is unfortunate that legitimate points about China’s dumping of steel and manipulation of currency are overshadowed by his shouting and bawling.

Astonishingly, Clinton also opposes the deal, which she in fact helped create. This is shameful for someone of her diplomatic calibre. TTIP would create the largest trading zone on the planet, involving almost 40 per cent of GDP. More importantly, it would create a common set of industry and safety standards spanning the US and Europe. With such a combination of political and economic power behind them, these standards would inevitably become the global norm; this would be a boon for consumer standards globally.

If she wins on 8 November, Clinton should be prepared to flip on her current TTIP stance. The deal would provide a welcome boost to anaemic Western growth and would strengthen the transatlantic partnership, something often undervalued by President Obama.

Movement towards freer trade has been a central part of the international order since 1945. To abandon it now and surrender to protectionist arguments would be highly damaging. Free trade is a logical goal to pursue in a world that is becoming more globalised and interconnected. Though not without its negative effects, free trade provides overwhelming benefits to all, especially those in the developing world. To abandon it because of populist domestic politics would be a huge mistake. Free trade must be protected.

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