The case of open trade – and why it is such a bad idea

Open trade bad idea

Free trade is a heatedly debated issue in politics and the media. Those who oppose the idea of open trade between countries usually come up with the argument that comes down to something like this: ‘as a result of open borders, we lose jobs to those foreigners, and our factories are relocated elsewhere’. The suggested remedy is then that if borders are closed by upholding trade barriers, the jobs will come back, and the factories remain. Another often heard complaint is that so called regulatory competition will lead to a downward spiral: countries with the most flexible rules on product standards, labour regulations or environmental issues will attract most companies and be successful as a result of open trade.

As simple, safe and convenient as it sounds, such arguments are hardly convincing. The idea of open trade after all is that when each country excels in what they do best -in an environment of free competition- we all benefit on the long term. Open trade however will only work when the ‘rules of the game’ are more or less equal amongst the participants of a free trade agreement. So using such arguments to oppose the concept of free trade is actually an argument to encourage more strength to free trade institutions such as the NAFTA, MERCOSUR, SACU and the EU, and level the playing field. Probably not really what these politicians had in mind.

However, there are some rather convincing arguments against open trade, although they are hardly used in this political debate. They may sound less popular, and are not phrased in catchy one-liners, but they surely exist. And, they should be well considered in the current political debates around the globe regarding free trade issues. The main argument I would like to stress here is that open trade will only work if countries can compete with more or less the same prospects. But when there structurally is unequal access to power, means and welfare, only the strongest will prevail, and not everyone will benefit.

1. There is unequal access to power
The most important global institutions that contribute to the realization of free trade have an unequal system of power distribution. In especially the IMF and World Bank, voting power of countries depends on the seize of their economy, or their financial share in the organization. This means that ‘rich’ countries always prevail over ‘poor’ countries. When such voting power is more equally distributed, such as within the WTO, we see that our world leaders are hardly capable of taking joint decisions at all. The fact that we are still waiting for an agreement as a result of the Doha Round (which was launched in 2001!) says it all.

2. There is unequal access to means
Some countries were lucky, and some had bad luck as to their location, the quality of their governance, or the appearance of basic materials. These factors greatly determine the nature of your economy. A landlocked country with mostly mountains and frequent earthquakes will unlikely be able to compete easily with a seafaring nation with mild seasons and a stable climate. And a corrupt country will hardly run as efficient as a less corrupt nation. To assume that the first country should compete on the same footage and conditions with the latter country is simply unfair.

To disagree with this argument in essence comes down to accepting that there are profound differences in people’s capacity based on where people come from. As far as I know, this would be racial discrimination, or discrimination based on origin. And I have never seen any academic evidence that such discrimination can be neutrally justified.

3. There is unequal access to welfare
According to Thomas Pikkety (2014, Capital in the 21th century), interest on capital may is more rewarding than salary that comes with having a job. In other words: having money is more profitable than to work for it. Of course his book is slightly more nuanced and sophisticated, but in essence this is his conclusion. If he is right (which is debated in the academic world), this would mean that rich people/countries will always be richer, and the poor will seldom become truly prosperous.

To sum up the above in different wordings: open trade only benefits countries that have more or less similar prospects. If not, there will be injustice and abuse of power, and in the end: conflict.

This blog relates to the following chapters of the author:
Wernaart, B. (2015). Ethiek en economie, een grensoverschrijdende inleiding. Groningen: Noordhoff uitgevers. H. 12.
Wernaart, B. (2017). International business law, a global introduction. Groningen: Noordhoff uitgevers. H. 3. 

 

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