ISSUE: Free Trade

Free Trade

By Matthew Benjamin

Is its age of expansion at an end?

Executive Summary

Is the era of trade liberalization that began in 1945 over? The collapse of world trade talks in 2008, Great Britain’s shocking vote last year to leave the European Union and the election of President Trump on an anti-globalization platform suggest that it might be. The gains from trade for both advanced and emerging economies are hotly debated. While economic globalization lifted hundreds of millions from poverty, developing countries have balked at further trade talks dominated by rich nations. Workers in industrialized countries have begun to doubt that free trade is a net positive for them, and politicians have responded with an about-face on new agreements. For supporters of global economic integration, the way forward is unclear.

Among the key takeaways:

  • World trade fell precipitously during the Great Recession of 2007–2009, and dropped again in 2015 by nearly 14 percent.

  • A trade war—possibly sparked by new U.S. policies, followed by retaliatory tariffs by China and other trade partners—could result in massive job losses in the United States and elsewhere and trigger a recession.

  • Further trade liberalization looks unlikely in the near term; merely maintaining current levels of integration may require new strategies and policies.

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Resources for Further Study

Bibliography

Books

Bernstein, William, “A Splendid Exchange: How Trade Shaped the World,” Grove Press, 2009. A financial theorist and historian looks at the long narrative of trade, from ancient Mesopotamia to the WTO Doha round.

Bhagwati, Jagdish, “In Defense of Globalization,” Oxford University Press, 2007. A Columbia University economics professor argues for free trade, detailing how it has the potential to enable prosperity in developing countries by reducing child labor, increasing literacy and supporting the participation of women, among other things.

Fletcher, Ian, “Free Trade Doesn’t Work: What Should Replace It and Why,” Coalition for a Prosperous America, 2011. A trade theorist advocates a high (perhaps 30 percent) flat tariff on all U.S. imports of goods and services, saying such a levy would be politics-proof and would trigger a return of capital- and knowledge-intensive industries.

Irwin, Douglas, “Free Trade Under Fire,” Princeton University Press, 2015. A Dartmouth College economics professor asks if free trade deserves its poor reputation and concludes that, despite its flaws, trade enables growth and works against poverty.

Mandelbaum, Michael, “The Road to Global Prosperity,” Simon & Schuster, 2014. A professor of foreign policy at the Johns Hopkins School of Advanced International Studies looks at recent worrisome economic developments, yet argues that globalization will continue to be a positive force.

Articles

“CFR’s Jagdish Bhagwati Argues Against Preferential Trade Agreements in New Book; Recommends Completion of Multilateral Doha Round,” Council on Foreign Relations, July 16, 2008, http://tinyurl.com/habkfew. A Columbia University professor argues that bilateral trade deals make world trade more difficult by creating overlapping and sometimes contradictory agreements.

Appelbaum, Binyamin, “A Little-Noticed Fact About Trade: It’s No Longer Rising,” The New York Times, Oct. 30, 2016, http://tinyurl.com/j39fwsh. An economics journalist explains that trade is no longer growing and how that fact affects global economic growth.

Hufbauer, Gary Clyde, and Euijin Jung, “U.S. Bilateral Trade Balances: A New Guide to Trade Policy,” Peterson Institute for International Economics, Nov. 15, 2016, http://tinyurl.com/jn83jon. Two experts at a think tank respond to Trump advisers’ assertions that reducing the trade deficit would increase GDP growth.

Rodrik, Dani, “Put Globalization to Work for Democracies,” The New York Times, Sept. 17, 2016, http://tinyurl.com/gm5hefz. A Harvard University economist calls for a more moderate form of trade liberalization, with a balance between national autonomy and economic globalization.

Scheve, Kenneth, and Matthew Slaughter, “A New Deal for Globalization,” Foreign Affairs, July/August 2007, http://tinyurl.com/zg3cd7z. The authors advocate for an open global system that ensures a majority of workers benefit from it, largely through income redistribution.

Slaughter, Matthew, “High-Trade Jobs Pay Higher Wages,” The Wall Street Journal, Jan. 20, 2014, http://tinyurl.com/jcp5l23. A business school dean argues that workers at globally engaged companies earn more than those at purely domestic companies.

Tankersley, Jim, “Donald Trump’s trade war could kill millions of U.S. jobs,” The Washington Post, March 25, 2016, http://tinyurl.com/juky9v9. A Moody’s economic model predicts that a round of retaliatory tariffs could bring recession and job loss.

Verma, Sid, “Barclays Warns ‘Politics of Rage’ Will Slow Global Growth,” Bloomberg News, Oct. 24, 2016, http://tinyurl.com/z2lvzys. A report discusses the implications of growing opposition to globalization for economies and markets.

Reports and Studies

“The Economic Benefits of U.S. Trade,” Council of Economic Advisers, Executive Office of the President of the United States, May 2015, http://tinyurl.com/zcxz2bq. An Obama administration paper argues that trade and globalization since World War II have delivered important benefits for U.S. consumers, workers and businesses.

“Report urges WTO members to resist protectionism and get trade moving again,” World Trade Organization, July 2016, http://tinyurl.com/zsp5b9j. The WTO issues a report that finds that protectionist measures are proliferating around the world. It urges member countries to resist such policies and embrace trade as the solution to faster economic growth.

“Trade in 2016 to Grow at Slowest Pace Since the Financial Crisis,” World Trade Organization, Sept. 27, 2016, http://tinyurl.com/j5n3uxr. The WTO looks at the slowing pace of trade growth.

Furman, Jason, “Wal-Mart: A Progressive Success Story,” New York University, November 2005, http://tinyurl.com/jlvf32s. One of President Barack Obama’s top economic advisers argues that any harm the retail behemoth has done to workers is outweighed by the price reductions it brings to the entire populace.

Hufbauer, Gary Clyde, and Sean Lowry, “U.S. Tire Tariffs: Saving Few Jobs at High Cost,” Peterson Institute for International Economics, April 2012, http://tinyurl.com/hwvxumf. A study looks at how one punitive tariff saved 1,200 jobs, but at a hefty cost to U.S. car and truck buyers.

The Next Step

Rise of Nationalism

Chesto, Jon, “GE’s Immelt raises concern about nationalist trade policies,” Boston Globe, Feb. 27, 2017, http://tinyurl.com/go2ba4k. General Electric CEO Jeff Immelt wrote to his shareholders that he and his company support “multilateralism and free trade,” but are prepared for a worldwide pullback from globalization.

Holodny, Elena, “A new study shows that areas in Europe hit hardest by trade saw a rise in support for nationalist parties,” Business Insider, Feb. 8, 2017, http://tinyurl.com/zsvzohf. European regions that suffered a stronger shock from Chinese imports were more likely to experience a rise in nationalism and support for far-right political parties, according to an Italian study.

Pazzanese, Christina, “In Europe, nationalism rising,” Harvard Gazette, Feb. 27, 2017, http://tinyurl.com/jyg6sc5. Far-right candidates running in upcoming elections in European countries, such as the Netherlands, France and Germany, are encouraged by Donald Trump’s presidential victory.

Domestic Jobs

Lee, Don, “Trump’s push for American-made could disrupt NAFTA supply chains and raise consumer prices,” Los Angeles Times, Feb. 28, 2017, http://tinyurl.com/hdhygup. President Trump plans to renegotiate the North American Free Trade Agreement (NAFTA) to encourage domestic manufacturing, which could end up raising prices for American consumers.

Light, Larry, “Are robots or Mexicans to blame for U.S. job losses?” CBS News, Feb. 21, 2017, http://tinyurl.com/hofepae. The increase in automation and cheap overseas labor are factors in the loss of U.S. manufacturing jobs.

Velazquez, Katarina, “Proposed Mexico tariff could complicate agriculture trade,” Star-Telegram, March 4, 2017, http://tinyurl.com/jh3m9mj. President Trump’s proposed 20 percent tariff on Mexican imports could lead to a trade war that experts say would result in a loss of income for U.S. agricultural producers.

Immigration’s Effects

Brewer, Contessa, “Border towns feel the chill from Trump’s tough talk on trade and immigration,” CNBC, March 4, 2017, http://tinyurl.com/z5mag2e. President Trump’s calls for a Mexican border tax, renegotiating NAFTA, a border wall and tougher immigration policies are worrying Mexican investors, especially in the produce industry.

Bryan, Bob, “Asked about Trump’s immigration plans, Janet Yellen says ‘slowing immigration would slow economic growth,’” Markets Insider, Feb. 15, 2017, http://tinyurl.com/hd9wgz6. Federal Reserve Chair Janet Yellen said during testimony to the Senate Banking Committee that restricting immigration could hurt the economy.

Singh, Shruti, “Cargill at Odds With Trump as It Warns on Trade, Immigration,” Bloomberg, Feb. 4, 2017, http://tinyurl.com/hot2gr4. The CEO of agribusiness giant Cargill, David MacLennan, warns that curbing legal immigration could damage the U.S. economy, cause food shortages and trigger international conflict.

International Uncertainty

“EU awaits ‘solid outline’ of Trump trade goals with Europe,” The Associated Press, ABC News, March 3, 2017, http://tinyurl.com/jlj3pam. As the European Union (EU) waits for President Trump to define his trade goals regarding Europe, some of the Continent’s leaders are concerned about his “America First” views.

Chrysoloras, Nikos, and Stearns, Jonathan, “The Trump Trade Threat Could Unite the Rest of the World, EU Official Says,” Bloomberg, March 4, 2017, http://tinyurl.com/hjmh534. A European Union official said President Trump’s protectionist approach to world trade may result in economic alliances between the EU and Asian, Latin American and Middle Eastern countries.

Donnan, Shawn, “Policy uncertainty threatens trade growth, says World Bank,” Financial Times, Feb. 21, 2017, http://tinyurl.com/z5n87ms. A World Bank report, citing a rise in protectionism and threats to global trade agreements, concluded that political uncertainty is slowing trade growth around the world.

Organizations

American Enterprise Institute
1789 Massachusetts Ave., N.W., Washington, DC 20036
202-862-5800
www.aei.org
Think tank that advocates in favor of the free-enterprise system.

Coalition for a Prosperous America
1200 G St., N.W., Washington, DC 20005
202-688-5145
www.prosperousamerica.org/
Think tank that promotes an overhaul of U.S. trade policy.

Economic Strategy Institute
1730 Rhode Island Ave., N.W., Suite 414, Washington, DC 20036
202-213-7051
www.econstrat.org/
Research organization that favors more transparent and open markets in international trade.

International Monetary Fund
700 19th St., N.W., Washington, DC 20431
202-623-7000
www.imf.org
Institution established by 1944 Bretton Woods conference that works for global monetary cooperation, financial stability and global trade.

International Trade Administration
U.S. Department of Commerce, 1401 Constitution Ave., N.W., Washington, DC 20230
202-482-3809
www.trade.gov
Commerce Department office that helps coordinate trade matters and provides studies and data on trade.

Office of the United States Trade Representative
600 17th St., N.W., Washington, DC 20508
202-395-3230
https://ustr.gov
White House agency responsible for coordinating U.S. international trade, commodity and direct investment policy and overseeing negotiations with other nations.

Peterson Institute for International Economics
1750 Massachusetts Ave., N.W., Washington, DC 20036-1903
202-328-9000
https://piie.com
Think tank focused on international economic and trade issues.

U.S. International Trade Commission
500 E St., S.W., Washington, DC 20436
202-205-2000
www.usitc.gov
Federal agency established in 1916 as the U.S. Tariff Commission; gathers and analyzes trade data and provides trade expertise to Congress and the president.

World Trade Organization
Centre William Rappard, Rue de Lausanne 154, CH-1211 Geneva 21, Switzerland
+41 (0)22 739 51 11
www.wto.org
Intergovernmental organization that regulates international trade.

DOI: 10.1177/237455680308.n1