Free-Trade Hypocrites

By Michael Elliott

For one of the most elegant propositions in the social sciences, free trade causes a lot of grief. The case for trade is simply put: if each economy produces what it does best and then trades with other economies for their goods and services, everyone's wealth goes up. Trade is about specialization. But the biggest threat to expanding trade today is that the rich industrial nations continue to block the food and fabric exports that are the natural specialty of poorer developing countries.

Trade always matters. But it matters now more than ever, with the global economy slumping and the U.S. in need of poorer countries as partners in the war against terrorism. Right now there is nothing more important on the economic agenda than securing a new round of measures to reduce trade barriers. Trade ministers have just met in the Persian Gulf city of Doha, Qatar, to work out the outlines of such a round. They need to move fast: the World Trade Organization estimates that in 2001 the growth in the volume of world trade in goods will be just 2%, compared with 12% in 2000.

At a time when disparities of income are growing, trade offers the best way in which poor countries can tap into the opportunities of the global economy. The World Bank estimates that expanding world trade could lift annual global output by 0.5% a year, lifting 300 million people out of poverty by 2015. Over the past 30 years, economies that have put trade at the the forefront of their policies--such as Taiwan and Singapore--have grown much faster than those in Latin America and Africa that once tried to shelter behind tariff walls. Robert Zoellick, the U.S. Trade Representative, recently said, "Trade is a critical element--perhaps the most important element--in economic development, offering the biggest and most lasting dividends."

Poor nations have heard that before; some are not impressed. Trade, they say, needs to be a two-way street. However much a developing country orients its economy to the outside world, it needs others to buy its goods. At the Uruguay Round of trade talks, which concluded in 1993, the developing world was promised much greater access for its products to rich markets. But the reality has been disappointing.

In the early stages of economic development, a nation's principal exports are almost always farm products and basic manufactures based on them, like textiles and clothing. But in both the U.S. and the European Union, the farm lobby is powerful. In the U.S., for example, domestic producers have long succeeded in imposing quotas on sugar imported from the Caribbean, though it is one of the islands' crops of comparative advantage. European governments, with the French at the fore, have always sought protection for their farmers as a way of preserving the rural environment and village life. Nick Stern, chief economist of the World Bank, recently estimated that total agricultural subsidies in the rich world were worth $300 billion a year--about equal to all the economies in sub-Saharan Africa.

The U.S. textile industry, ably defended over the years by Senators Jesse Helms and Ernest Hollings of the Carolinas, has long been one of the most aggressive lobbies for tariffs and quotas. Such protection hurts more people than it helps. Stern calls agricultural subsidies "a rip-off" for citizens of rich countries, who have to pay higher prices and taxes than they would in a world where goods were traded freely. But those hurt by free trade--farmers and textile workers who might have to shift jobs--are always easier for politicians to identify and support than the much larger number who are helped by it. And remember: those helped include foreigners whose export earnings enable them to afford more U.S. products.

Just possibly, the current crisis will convince doubters of the myriad virtues of trade. Pakistan has only one export industry worth anything: textiles. But anyone now wanting to buy from Pakistan is going to have to pay much higher insurance premiums than they did before Sept. 11. The Pakistani government has asked for a reduction in the tariff on its exports. The Europeans have agreed; the U.S. Administration--lobbied, as ever, by domestic mill owners and their political friends--is still thinking about it. And that's shameful.

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