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The Make Trade Fair movement chose its moniker wisely. No one supports "unfair trade." But contrary to the movement's claims, free trade is the most desirable policy. Moreover, it is fair.
Fair traders have portrayed the global economy as an exploitative system. Organizations like Oxfam have said that the World Trade Organization (WTO) is responsible for "rigging the rules" in favor of rich countries, "driving the poor deeper and deeper into poverty."
These activists refuse to acknowledge what economist Arvind Panagariya dubs "some inconvenient facts."
First, developing countries are overwhelmingly more protectionist than their rich counterparts. Second, the developed economies did not become rich due to protectionism.
Third, the abolition of agricultural subsidies would not unambiguously benefit poor nations. Fourth, the seemingly unfair burdens of liberalization borne by poor economies are a reflection of past policy choices, not an outcome of rich nations abusing their power.
Finally, contrary to claims that the WTO needs a massive overhaul, the institution remains a viable vehicle for trade liberalization that promotes economic development.
1. On average, developing nations' tariffs on imported industrial products are three times higher than high-income countries' barriers. Their tariffs on agricultural products exceed those of developed countries, and their barriers in the textile sector are more than double that of their richer counterparts.
2. Nor did the developed economies only adopt freer trade after becoming rich. In fact, trade liberalization was critical to their economic advancement. Britain industrialized while unilaterally pursuing free trade in the 18th century. Similarly, international trade was key to U.S. and Australian industrialization in the 19th century. And trade drove the startlingly rapid economic growth and poverty reduction of the East Asian "tigers" - Hong Kong, Singapore, Taiwan and South Korea - in the latter half of the 20th century.
3. Fair traders have come to adore one form of trade liberalization, however - agricultural subsidy abolition. The European Union and United States spend billions of dollars to aid their farmers, driving food prices down and developing country farmers out of the market. Ending these payments would not be a panacea for the poor, however. As Panagariya has repeatedly argued, given that the vast majority of poor countries are net importers of agricultural products, the price rise caused by the abolition of subsidies would cause a welfare-reducing terms-of-trade deterioration for most developing countries. Subsidies should be abolished to improve global agricultural efficiency, but doing so won't be painless.
4. Poor countries are pressured to liberalize at the WTO because they are so protectionist. In the 1960s and '70s, most developing nations pursued import-substituting protectionist strategies and did not participate in the Generalized Agreement on Tariffs and Trade, the WTO's predecessor. If the current structure of global trade seems contrary to the interests of the poor, it's partly because they did not arrive at the negotiating table until the 1980s.
5. The WTO is an exercise in international democracy - since its trade agreements require a consensus to take effect, each member nation holds a veto. The walkouts by developing nations at Seattle in 1999 and Cancun in 2003 reflect their negotiating muscle. While the WTO has its flaws, it remains a viable trade liberalization mechanism for both developed and developing countries, as demonstrated by Brazil's cotton subsidy victory against the United States at the organization's dispute settlement panel.
Obviously, trade liberalization and economic development are complicated issues, and economists spend entire careers debating these topics' theoretical nuances and empirical irregularities. But there is a consensus in regard to the core message about trade - freer trade is preferable to protectionism. Trade may not be sufficient for economic development, but as economists Joseph Stiglitz and Andrew Charlton remark in Fair Trade For All, "no country has achieved sustained economic growth without engaging in trade."
Economists agree that free trade is the long-run goal; their debates are about the short-term policies to get us there. Oxfam campaigners that trot out protectionism under the guise of the long-refuted infant industry argument are just steering developing countries into a dead end.
Jonathan Dingel is a senior at Gonzaga
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