Forum on the World Economic Order Program: Better Together? Free Trade in the Protectionist Era

Source: FNF

The FNF Forum on the World Economic Order launched its first program in July, a six-day study tour focused on the state of free trade in light of increasing protectionist rhetoric around the world. The Forum welcomed six trade experts from Germany, Lebanon, Pakistan, Serbia, Slovakia, and South Africa to Washington, DC to meet with U.S. trade policy professionals in the private sector, NGOs, think tanks, and government.

Over the course of the program participants engaged in meetings with individuals from 12 trade-minded institutions in the Washington, DC area, including: Washington International Trade Association, Heritage Foundation, Cato Institute, U.S. House of Representatives, Georgetown University, Office of the U.S. Trade Representative, U.S. International Trade Commission, Politico, and President Trump’s transition team for trade, among others. In addition, the Friedrich Naumann Foundation hosted an open panel discussion at the end of the week where the participants from Germany, Lebanon, Pakistan, and South Africa were able to share the state of trade in their countries with 50 guests, followed by a question and answer session.

During the week the participants were able to gain insight into U.S. perspectives on free trade, as well as attitudes towards trade in the other participants’ countries. The diverse mix of participants and partners allowed for a more comprehensive view of the effects of trade, and addressed the disproportionate benefits of trade both within nations and across borders. Although the U.S. discussion partners spanned the political spectrum, there was overwhelming support for free trade as a means to ensure American, as well as global, prosperity. Several speakers illustrated the clear benefits that globalization and free trade has brought the United States, and rejected the idea that the U.S. should retreat from the world trading order through unwarranted protectionist policies.

Source: FNF

Therefore, rather than dispute the usefulness of trade, many of the meetings focused on how to garner domestic support for trade in protectionist-leaning societies, and how to better distribute its gains. As one speaker revealed, the ratio of benefits to losses for developed countries from globalization of trade, industry, and research and development is 20:1. These surplus benefits should be enough to mitigate the losses of those left behind by trade and make a clear case for the importance of a globalized economy, but the United States and other developed countries don’t do enough to address the “losers.” As a result, communities disadvantaged by trade continue to see their quality of life decrease as they watch hundreds of millions around the world benefit from exporting cheap goods and labor, while companies close U.S. operations and move to lower-cost countries. Many speakers noted that in reality, far more jobs are lost to automation than to foreign workers. However, trade is an easier target, and the distribution of gains and losses explains why it has become such a charged issue. While benefits from trade tend to be more dispersed, typically in the form of a slightly better car or cheaper grocery bill, losses like factory closures tend to be concentrated and more deeply felt, affecting entire communities. All of the experts agreed that until something is done to rectify this disparity, protectionist sentiment will not go away.

Much of the conversation also centered on the current U.S. Administration, and the role of the executive branch in dictating U.S. relations with other countries. One speaker emphasized the numerous relationships between the U.S. and its allies that are not centered on the President, and that these ties will continue regardless of who is in the White House. He cited that although President Trump has pulled the United States from the Paris Climate Accord, a number of companies and states have nonetheless decided to maintain their obligations to the agreement. This also applies to trade relationships between U.S. firms and other countries. Other speakers noted that the amount of protectionist action that has been taken in comparison to the protectionist rhetoric that has been espoused is very small. Therefore, the focus should be on what is actually being done, rather than what is being said, in order to understand the true state of U.S. trade policy.

Source: FNF

NAFTA was a reoccurring theme throughout the week, and although not all partners supported the incendiary rhetoric surrounding the trade deal, there was general agreement that the by-product of introducing renegotiations was a positive outcome. Most of the speakers urged against making trade deficits the focus of the renegotiations, as this could have negative effects on global value chains. They asserted that the focus should be on updating NAFTA for the 21st century, particularly for the digital sector. In this vein, one speaker maintained that the Trump’s attitude toward trade deficits can help ensure a more level playing field for trade by looking into practices that have been deemed unfair, which can affect deficits without making them the focus. For example, although tariffs are falling around the world, other fees have been imposed by some countries to make foreign exports less competitive. The discussion on trade deficits has opened the debate to other more overlooked issues such as this, which may actually benefit the contemporary rules-based trading order.

One speaker summed up the week by describing the current rhetoric around free trade as a shift from the post-World War II order to a pre-World War I order. The anxieties that many communities are feeling, which have given rise to protectionist and populist sentiment around the world, are the result of the existing social structure’s failure to provide for individuals. As colleges fail to produce jobs for graduates, governments are racked by scandal and in-fighting, and companies can no longer provide decades-long job security, individuals are seeking to withdraw from the global order. In doing so, they support a return to a more insular system in an attempt to recapture former prosperity, similar to the isolationism that preceded the First World War. This attitude was unsuccessful pre-1914, and is even less tenable in today’s increasingly interconnected world. However, nearly every speaker acknowledged that the current order is broken, and that steps must be taken to address the issues of trade to prevent further societal failure. For many, that begins with an improved unemployment benefits system, increased job training for sectors displaced by trade, and apprenticeship programs for opportune fields, rather than protectionist policy.

The Forum on the World Economic Order would like to thank all of the participants for their excellent engagement throughout the week. It was a promising start to this new initiative, and we hope you’ll stay in touch!

 

Courtney Flynn, Program Associate, Forum on the World Economic Order, Friedrich Naumann Foundation for Freedom