Despite Myths, Flaws, Free Trade Best Option

I once had the audacity during a social dinner to propose that free trade, and globalism in general, was helping to raise the living standards of the developing world. One lady at our table, a retired school teacher I recall, was so flabbergasted by the remark I thought for a moment she might fall off her chair.

One just doesn’t discuss this type of thing in polite society; especially as large segments of our society have been brainwashed into thinking that global free trade is an instrument used by rich countries and corporations to exploit poor ones. You don’t have to be hanging out with protestors at a G7 or WTO meeting to hear these views. Such ideas are frequently floated on the opinion pages of highly regarded newspapers around the world.

Yet, contrary to anti-free trade rhetoric, a number of studies have indeed shown that free trade is largely a benign economic and social force in developing countries. The countries that have achieved the largest reductions in poverty are those that have been most open to international trade. In the last 20 years countries such as Singapore, Taiwan, South Korea, Mexico and now China have significantly reduced poverty levels, primarily as a result of open trade. The World Bank estimates that the proportion of the poor in developing countries declined from 28% in 1987 to 23% in 1999. That 5% is significant, as it represents millions of people.

Another slam against international trade frequently heard, is that while rich countries promote it, they do everything they can to protect their own markets. In fact, rich countries are, on the whole, far less protectionist than poor ones. Rich nations’ tariffs on industrial products average about 3%, compared to 13% for poor countries, according to the journal Foreign Policy. In the textile and clothing sectors, tariffs in developing nations (21%) are more than double those in rich countries (8%). The perception that rich countries are highly protectionist arises mainly from agricultural subsidies in Canada, the United States and Europe, a politically-motivated practice that appears mysteriously immune to reform.

Of course free trade is also being bad-mouthed these days by many of the same people who once favored it. This is because of the continuing loss of manufacturing business and jobs to low-cost foreign countries. Certainly there is cause for concern here, especially when the lost business is a result of unfair or illegal trade practices, as I have written in this space previously. North American manufacturers have a right and duty to seek legal redress against such practices, as in, for example, the recent duties placed on plastic bags imported from Asia. Yet, I’ve been to many meetings and have yet to hear anyone arguing to abolish free trade. There is a general understanding and acknowledgement of the tremendous benefits of open trade to an export-driven country such as Canada. Instead, the focus has been on how to improve productivity and become more competitive.

Certainly free trade will continue to require adjustments to the way we do business. I choose to take the optimistic view that there will always be a place for a cost-competitive, North-American manufacturer with good full-service and design capabilities. Off-shore manufacturing is not the magic bullet for everyone. In the coming years free trade will continue to raise the living standards of developing countries and create new markets for our products, patents and services. The very complexity of engaging in open trade between different economic and political systems guarantees there will be bumps and squabbles. But the pain is well worth the gain.