Voters Won’t Like It, but We Have to Bring Back Free Trade

Persistent joblessness and tepid growth are persuading policymakers to lower the barriers once again

  • Share
  • Read Later
Mark Elias / Bloomberg / Getty Images

A top-loader vehicle carries a container through the South Florida Container Terminal yard at the Dante B. Fascell Port of Miami-Dade County, Florida, U.S.

There was a time, not that long ago, when policymakers and economists didn’t dare question free trade. The open exchange of clothes, cars, oranges, TV sets and everything else was almost universally upheld as a rock-solid route to prosperity. But over the past decade, free trade suffered a near death experience. The whole concept became a whipping boy for all sorts of economic evils. Workers, especially in advanced economies, blamed free trade for job losses to emerging nations and downward pressure on wages.

While it’s true that not everybody gains equally from free trade, there is no shortage of evidence that eliminating barriers to the flow of goods and services is beneficial for economies overall — boosting exports, enhancing efficiency and reducing prices for consumers. But tell that to angry voters. In one 2012 survey, more than half of respondents in the U.S. believed the country should either renegotiate or pull out of the North American Free Trade Agreement (NAFTA), even though it had gone into effect 18 years earlier.

Politicians took note. Republicans and Democrats may not agree on much these days, but some have reached across the aisle in recent years to call for the repeal of NAFTA. Many governments soured on approving new pacts. A free-trade agreement between the U.S. and South Korea took four years to ratify. International efforts to bring down trade barriers also stalled. The Doha Round of trade talks, which started in 2001 through the World Trade Organization, broke down over bitter differences between developed and developing nations. Doubts emerged that the deal could ever get done.

(MORE: Is the Global Economy Slowly Falling Apart?)

Free trade, though, has unexpectedly sprung back to life, with U.S. President Barack Obama wielding the defibrillator. In a reversal of his previous hesitance — he too once expressed anti-NAFTA sentiments — Obama is pressing hard for a couple of wide-ranging trade deals that would be the most important in two decades. Long-awaited negotiations began in July for a trade agreement between the U.S. and E.U., which would knit together countries with nearly half the world’s GDP into a massive free-trade zone. On the other side of the world, the U.S. is also pushing for the completion of the Trans-Pacific Partnership (TPP), a trade pact that would include nations as far-flung as New Zealand, Peru and Malaysia. These deals, if finalized, “would change the entire trade landscape,” says Bruce Stokes, director of the global-economic-attitudes program at the Pew Research Center in Washington.

Countries that had been resistant to these pacts have changed positions and signed on. Japan, famously protective of domestic sectors like agriculture, decided to join TPP negotiations in March. “If Japan alone should become inward looking, we would have no chance of growth,” Japanese Prime Minister Shinzo Abe explained when announcing his decision. “The TPP is a framework which promises ‘prosperity in the future’ in the Asia-Pacific [region].”

(MORE: A Yen for Cash — How the Bank of Japan Could Threaten the Global Economy)

There is new energy on the international front as well. WTO director general Roberto Azevêdo, immediately upon taking office this month, called for a series of meetings to engineer a breakthrough in Doha negotiations ahead of a December ministerial-level conference in Bali. Members have hoped to reach an agreement that’s been dubbed Doha Lite, a more limited menu of trade reforms aimed at reducing bureaucratic barriers and aiding poor nations. Azevêdo’s enthusiasm may already be bearing fruit. The U.S. and India are attempting to set aside their differences over controversial government food-security programs, which have become a primary obstacle to a Doha deal, to allow negotiations to move forward.

What’s behind the new free-trade fervor? Still struggling with joblessness and a tepid recovery five years after the collapse of Lehman Brothers, policymakers have warmed to free trade once again in their desperate quest to elevate growth and create jobs. There are ample grounds for hoping free trade would do the trick. The Peterson Institute for International Economics figures that the TPP would increase U.S. national income by almost $77 billion a year by 2025; Japan would get a boost of over $100 billion. Similarly, the Munich-based Ifo Institute estimated in a recent report that per capita income in the U.S. would jump by 13.4% over the long term if a comprehensive U.S.-E.U. trade deal is reached, while E.U. citizens would see a 5% increase.

Still, there is no guarantee any of these pacts will advance past the blabbering stage. Hard negotiations lie ahead, with participants all angling for maximum benefit at minimal sacrifice. France, for instance, set aside its opposition to the U.S.-E.U. talks in June only after its European neighbors agreed to exempt its prized movie industry from any final deal — just the type of exception that could stymie a comprehensive agreement. Nor is it clear that voters, especially in the advanced economies, have become more amenable to such pacts. “Free trade is always something of a tough sell,” laments James Roberts, research fellow at the Heritage Foundation in Washington. Free trade may have escaped the undertaker, but a full recovery requires a lot more nursing.

MORE: What the Euro-Zone Bailout Plan Means