File photo of US President Donald Trump. Photograph:( Reuters )
Donald Trump picked a trade fight with China and also attempted to rejigg trade between the United States, Canada and Mexico.
While there is no such thing as “free trade”, but freer trade, which gained impetus after the second world war has not only raised world output, among other things but raised, also lifted millions out of poverty. Underpinned and promoted by an institutional firmament, especially the World Trade Organisation (WTO), whose precursor was the General Agreement on Trade and Tariffs (GATT), and what has been termed as the “liberal world order”, the freer trade paradigm is under serious threat. This holds despite US president Donald Trump’s assurances that trade talks between the United States and China were going on well and the March 1 deadline for tariffs might be extended.
The backdrop to the threat to freer trade is a mélange of the 2008 financial crisis, the assumption of Donald Trump to the highest office in the United States, with the concomitant rise of protectionism and mercantilism, or in other words, the primacy of the nation-state over a more open trading and even world order. The paradox here is that the United States, which led and pioneered the liberal economic and political world order and whose support for it was essential, benefited from an open economic order but is now retreating from it. The reasons pertain not to economics but to political economy.
While broad benefits accrue from freer trade, but it has both distributional and other economic consequences in terms of both “winners” and “losers”. This has been poignant in the United States where the distributional consequences of freer trade were acutely and intensely felt by those left behind by the gale of trade. The base brought Trump to power who, in his campaign pledges, promised to unwind the trade bargains and pacts and “make America great again(MAGA). In lieu of his pledges, Trump picked a trade fight with China and also attempted to rejigg trade between the United States, Canada and Mexico. The result has been a disruption that might feel good to some, but throws a spanner into the works of freer trade.
This insalubrious development is not only ominous but potentially threatens to roll back the stupendous gains made so far throwing into jeopardy human welfare. The question is: can freer trade be salvaged?
Yes. It can and it will perhaps gyrate to a dynamic of its own.
The reasons accrue from the nature of the 21st-century economy which is both a knowledge and a “gig” economy and the widgets, nuts and bolts one too. Trump’s focus till now has been the relocation of manufacturing to the United States. But, the country’s economy and even the global economy in which it is enmeshed has moved on. Profound and staggering developments in the Information, Communications and Technologies (ICTs), automation, robotics and Artificial Intelligence(AI) mean that the name of the game is different, especially in the developed world. This is not to demean the nuts and bolts economy which is and will remain relevant but it will be a complement to changes elsewhere. It is here that the United States, the world’s largest economy, must focus on instead of adopting a protectionist mercantilist paradigm.
The nature of this approach should be to reorient the country’s educational institutions and skill development in tune with the demands and the needs of the 21st century. A political price might have to made here but from a long duree perspective, it is the adoption of this particular approach that would be more sustainable and yield rewards both to the United States and the world, at large.
But, importantly, an important structural complement to the suggested paradigm, should be the creation of safety nets for those who are likely to be left behind by what is a veritable gale of “creative destruction” in the offing.
Cumulatively, a novel approach toward education, skill development and a safety net could lead to a condition that would be win-win and offset the losses from freer trade. There would also ensue global prosperity which could undercut migratory pressures to both the developed world and the United States, in particular.
In the final analysis, freer trade is a blessing that has proved to be a boon for mankind. It would be a sheer travesty if its momentum is derailed, even if temporarily. What is required, at this delicate point in world history, is far-sighted and deft leadership that is both particular and general.
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)