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

Open trade good idea

Free trade is a heatedly debated issue in politics and the media. The political sensitivity of the topic creates a maelstrom of arguments in favour and against open trade, in which statistics and arguments are thrown around without much second guessing or academic underpinning. Depending on the political colour of your newspaper, the media will choose to show you the pro’s or con’s of open trade. This even possibly results in the queer situation that
two newspapers (The Economist and The Guardian, on the 4th of January 2014) draw completely different conclusions on the functioning of the NAFTA on exactly the same date. While all this arguing and reasoning may have at the core some truth in it, I think we need to step back a bit to truly consider the real benefits of open trade.

These benefits are not about GDP, annual stats or other short term considerations, as we can find too often in the press or hear from our politicians. No, they are about how nations consider one another, and become more interrelated. As a matter of fact, when not misused, open trade is a key to long-lasting peace and prosperity. The idea is quite simple though: together you are stronger.

Peace
What we have learned from the Second World War should not be forgotten too easily. Before the war, Germany was economically isolated as a result of the treaty of Versailles. As you can read in my other blog, this eventually created the circumstances for Adolf Hitler to take and abuse power. We all know what horrible and unspeakable things happened next. When we zoom out, we see that an attempt to unite all countries after the First World War –the creation of the League of Nations- miserably failed due to the fact that this League mainly focussed on disarming and punishing the wrongdoers of the First World War. What we needed was something else.

It was not without reason that after the Second World War, the United Nations was founded, amongst others, to encourage economic cooperation as a key to peace. What we have learned from these dreadful World Wars is that it when countries are economically depending on one another, they will less likely engage in an armed conflict. In this context, the Bretton Woods Conference was held, in order to create a worldwide stronger economy, based on open trade.

And guess what: countries around the world that engage in bilateral trade agreements in which trade is liberalized amongst the participating states hardly take up arms against one another. Members of the NAFTA, the MERCOSUR, the SUCA or the EU did not fight each other. Instead, they had their fights in the margin of trade negotiations, using words and treaties as their weapon, but never again bullets.

Prosperity
For decades, economists have defended the idea of open trade. Most notably, David Ricardo (and his theory of comparative advantage) underlines that when there is full open trade, and each country would focus on offering products and serveries they are best in, all will benefit on the long term. This has some short term damaging effects: people in competing countries might lose their job due to the fact that people in another country are able to offer better or cheaper products and services. In the end, this is mostly a temporary side-effect, and countries will adapt and specialize, and be more prosperous.

While one can criticize this theory for being unrealistic for assuming that there exist such a thing as full open trade, there is some truth in it. However, mostly a truth that is unnoticed. People will hardly link participating in a free trade agreement to economic success. Only when the economy goes down, there is a tendency to complain that without the trade agreement, they would not have lost their job, or would have to pay such high taxes. Together you are stronger: this is true. However, when the economy falters, you also have to accept carrying the consequences of that together. If we would persist in doing so, on the long term, open trade is the best choice. Even in dark times.

Especially in dark times.

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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