The Washington Office of the Friedrich Naumann Foundation for Freedom has launched a new programme on World Economic Order (’’WEO’’) in summer 2017. Its main goals are to provide a forum for consultation between international economic experts and to galvanize discussions on contemporary political and economic issues. The first edition tackled the topics of free trade and protectionism.
Political movements can have tremendous economic consequences. The rise of populism in Europe and the United States is often described as globalization backlash. Economic protection seems to be triumphant: TTP and TTIP are put aside, while NAFTA renegotiations initiatives as well as the impeding Brexit negotiations add further to this bleak picture. Closing borders seems to be a new political imperative, as reflected in public discourse and even policies regarding the refugee crisis in Europe. While the previous debates were mostly regarding the left / right axis, now the debates are increasingly moving over to the open / closed dichotomy. Open borders that allow trade and flow of ideas, migration of people and movement of capital are contrasted to closed borders that impede these flows. In an ever increasing and interconnected world, it is still possible to build walls, but it comes with a price.
In order to provide more insight into these matters, as well as to provide a forum for discussion how to counteract the negative sides, the WEO programme gathered a group of people in Washington D.C. during the first week of August. Participants came from different countries (Pakistan, South Africa, Lebanon, Serbia, Slovakia, Germany and China) and with different backgrounds (political parties, consultants, business executives and think tanks). Interlocutors for the programme were congressional staff, government agencies working in the field of international trade (US International Trade Commission; US Trade Representative), think tanks (Cato Institute, Heritage Foundation, Peterson Institute for International Economics, Brookings Institute) and business associations and representatives.
Although the main topic of discussion was envisaged to be the US presidential election results and most notably the economic and trade policies that the new administration stated it would pursue, the discussion also reflected other problems that are often overlooked. What became clear during the course of the program is that the institutional checks and balances in the US are still in place - in order to pursue its economic policies the administration needs a broader coalition of interest among other stakeholders (most notably the Congress), which is, for the time being, lacking. This is reflected in the recent voting on the Obamacare. Furthermore, although Trump’s supporters and some Republican Party voters are protectionists, the Republican Party continues to be an overall free trade party.
The problem of trade deficit that is often cited in the media is not a problem per se - it is the result of numerous voluntary exchanges between individuals and companies, and in modern global supply chains it is almost impossible to say with any certainty where this deficit actually comes from (for example, American companies producing in China and then sending their products to be further processed in the US and then exported to Canada are counted as Chinese exports to the US). This interconnectedness would also create strong unanticipated negative effects in case of any protectionist measures (for example, duties on steel imports would boost steel production but would also hurt industries that would now have to use costlier steel inputs such as automobile manufacturing). It seems that free trade is used as a scapegoat for other economic and social problems that are visible in the American society, which are more structural in nature: the existence of twin deficits, skill gap in the workforce (both for new entrants to the labour market and more seasoned workers), and the automatization that is increasingly threatening manufacturing jobs. Furthermore, having in mind the economic situation - the US economy is growing (although at a somewhat moderate pace) and the unemployment is historically low at 4.3% - the question remains why the protectionist rhetoric is still prevailing in the public and attarcting so much attention.
However, the future does not seem bleak. The institutional checks and balances in the US are still strong and capable of ensuring continuation of free trade policies in the world’s strongest economy, at least for the time being. The popular support for globalization (and free trade) even in the US is stronger than support for protectionist policies. But all future is uncertain: that is why free trade voices should loudly condemn economic populism and protectionist policies even before they are implemented; pointing out to their negative consequences even for the people they were envisioned to help. And the WEO programme provides a good platform for precisely that.