Free Trade Breakdown

Worth A Look, Municipal Government, Frontier Centre

COPENHAGEN -Last month, the Doha negotiations, promising freer trade, broke down, ostensibly over a small technicality in safeguard rules. In reality, the talks collapsed because nobody was willing to take the political short-term hit by offending coddled domestic industries in order to create greater long-term benefits for virtually everyone.

And they broke down because we don’t care. After a few exasperated editorials, the world has dropped the subject.

This is foolish. Establishing significantly freer trade would help the world combat its biggest problems. For a low cost, we could improve education, make the poorest people richer and help everybody become better able to tackle the future.

We have known for centuries that free trade almost always benefits both parties. The economist David Ricardo pointed out in 1817 that both Great Britain and Portugal would benefit if they exploited their comparative advantages. Portugal could produce wine cheaply, whereas Great Britain could produce cloth more cheaply than wine. By selling cloth and buying wine, Great Britain obtains more of both, as does Portugal. The same holds true today, when countries produce more and exchange it for more of all other goods.

Yet today, we are moving toward building bigger trade barriers. These barriers are supported by self-serving corporations, and defended by politicians who are scared that the redistribution of jobs and wealth resulting from freer trade will reduce their chances of remaining in power.

When the Doha trade round was launched shortly after September 11, 2001, there was plenty of international goodwill. But a recent Financial Times/Harris poll in the U. S., Germany, France, the U. K., Italy and Spain found people nearly three times more likely to say that globalization is negative than positive.

Recently, the Copenhagen Consensus project gathered some of the world’s leading economists to decide how to do the most good for the planet in a world of finite resources. The panel found that one of the best actions the planet could take would be completing the Doha negotiations. They based their conclusions on new research by Australian economist Kym Anderson.

Anderson showed that if developing countries cut their tariffs by the same proportion as high-income countries, and services and investment were liberalized, the annual global gains could climb to US$120-billion, with US$17-billion going to the world’s poorest countries by 2015.

The story only starts here. As economies open up, competition drives up rates of growth.

Previously sheltered companies must shape up and become more productive. Having more open economies allows more trade in innovation. Instead of every closed market having to re-invent the wheel, once is enough to get everyone’s economy going.

Over time, the advantage of moving toward freer trade grows dramatically bigger: The US$120-billion benefit in 2015 grows to many trillions of dollars of annual benefits by the end of the century. And the benefits would increasingly accrue to the developing world.

We have seen three cases of such growth boosts. South Korea liberalized trade in 1965, Chile in 1974 and India in 1991; all saw annual growth rates increase by several percentage points thereafter.

If we recast these benefits as annual installments, a realistic Doha outcome could increase global income by more than US$3-trillion every year throughout this century. And about US$2.5-trillion annually would go to today’s developing countries every year.

There would be costs. Freer trade would force some industries to downsize or close, and for some, the transition would be difficult. Yet the overall benefits of a successful Doha Round would likely be hundreds of times greater than these costs.

It is interesting to contrast global skepticism about free trade with support for expensive methods to combat global warming. Many argue that we should act, even if such action will have no benefit for the next decades, because it will help lessen the impact of global warming by the century’s end.

But free trade also promises few benefits now and huge benefits in the future. Moreover, if we could stop global warming, the benefit for future generations would be one-tenth or less of the benefit of freer trade. Still, there are few celebrity campaigners calling on politicians to sort out the Doha Round.

Global fear about free trade leaves the planet at risk of missing out on the extraordinary benefits it offers.

Bjorn Lomborg is the author of The Skeptical Environmentalist and Cool It, head of the Copenhagen Consensus Center and adjunct professor at Copenhagen Business School.