Free Trade in Chains

The growing political backlash against trade in the advanced economies has raised a crucial question: does globalization need to be rolled back in order to preserve an open world economy? If policymakers don’t address it now, they are likely to answer for it later.

At the beginning of the new millennium, when the world was deemed “flat” because of its economic openness, international trade was a subject confined to the business pages and discussions among technocrats. Now, trade tops the political agenda in much of the world; in the advanced economies, it is populists’ favorite horse to whip. Even politicians who once embraced trade deals are now disavowing them, Project Syndicate reported.

In Britain, as a result of the Brexit vote, debates about the merits of trade with the European Union’s single market versus trade under World Trade Organization rules are now heard almost nightly. In the United States, both presidential candidates have made opposition to mega-regional trade deals—specifically, the 12-country Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership with the European Union—central to their campaigns.

None of this should be surprising, given how sharply public opinion has soured on such trade agreements. Opinion polls on both sides of the Atlantic identify trade as one of the major sources of the discontent roiling the world’s developed democracies. A survey by YouGov indicates that approximately 71% of Americans and 58% of Germans believe that their countries should embrace more restrictive trade policies to protect their economies from foreign competition. So the window of opportunity to conclude the TPP and the TTIP is closing; in fact, leaders like French President Francois Hollande are increasingly adamant that the TTIP is already a dead acronym.

Turn Against Trade

Project Syndicate’s columnists are deeply divided over the meaning of this turn against trade. Is there a risk, as some suggest, that the US–and Britain–could turn the clock back to the 1930s, when the US Congress enacted the Smoot-Hawley Tariff and Britain abandoned the gold standard, allowing sterling to depreciate and triggering a wave of restrictions on international trade and payments. Or is the turn against trade the inevitable reaction to an assumption–that free trade benefits all–that was never true in either theory or practice?

Despite much academic and official hand-wringing, Harvard’s Dani Rodrik, no free-trade cheerleader, sees “few signs that governments are moving decidedly away from an open economy.” Similarly, Rodrik’s Harvard colleague Joseph Nye, referring to the US presidential campaign, warns that it would be “an overstatement to say that the 2016 election highlights an isolationist trend that will end the era of globalization.”

Nonetheless, the signals coming from both sides of the Atlantic–and what they imply for the future of the international economic order that emerged at World War II’s end–worry many observers. Otaviano Canuto, an executive director of the World Bank, points to “a lack of progress in recent rounds of trade liberalization and the implementation of protectionist non-tariff trade barriers.”Although such “creeping protectionism has not yet had a significant quantitative impact on trade,” he argues, “its emergence has become a major source of concern amid rising anti-globalization sentiment in the advanced economies.”

Fast-forward to 2016, and “more than rhetoric has shifted,” says Bjorn Lomborg, the director of the Copenhagen Consensus Center. From Lomborg’s perspective, what Canuto characterizes as an upward creep in global trade restrictions is in fact a galloping trend. He laments that “the use of protectionist policies” was “up 50% in 2015, outnumbering trade-liberalization measures by three to one,” and that G20 members accounted for 81% of these new restrictions.

But that does not mean that faltering growth in world trade is the most important issue to address, as many–including the IMF–believe. On the contrary, Daniel Gros, director of the Center for European Policy Studies, argues that “blind faith in globalization” is the main source of the current political backlash, because it “led many to overhype” the benefits, “creating impossible expectations for trade liberalization.”