By Bjorn Lomborg
Friday, October 21, 2016
PRAGUE – Global free trade provides the greatest
opportunity to improve human welfare over the next decade and a half. It has
already helped lift more than a billion people out of poverty over the past
quarter-century. Lowering trade barriers even more could double average incomes
in the poorest parts of the world over the next 15 years.
Yes, there are costs to free trade that must be better
addressed; but the costs are vastly outweighed by the benefits. Yet, in rich
countries today, the mood has turned against free trade. That is a tragedy.
Nowhere is opposition to free trade louder than in the
United States. Regardless of who wins next month’s presidential election, a
free-trade skeptic will occupy the White House. Both Hillary Clinton and Donald
Trump oppose the biggest trade initiative launched by President Barack Obama’s
administration – the Trans-Pacific Partnership (TPP) with 11 other Pacific Rim
countries – and both would revisit the North American Free Trade Agreement
(NAFTA), which has been in force since 1994.
The other major Obama-led trade initiative, the
Transatlantic Trade and Investment Partnership (TTIP) between the US and the
European Union, is all but dead, crippled by opposition on both continents and
by the UK’s Brexit referendum result, widely interpreted as a vote for
protectionism.
Meanwhile, protests opposing free-trade deals are drawing
political support and crowds in Germany, Belgium, Canada, Sweden, New Zealand,
Australia, and elsewhere.
More than rhetoric has shifted. One study found the use
of protectionist policies up 50% in 2015, outnumbering trade-liberalization
measures by three to one. Members of the G20 – the world’s major advanced and
emerging economies, representing more than four-fifths of global GDP and
three-quarters of trade – were responsible for 81% of the punitive measures.
Politicians in rich countries tap into understandable
public fear. A trade deal creates adjustment costs concentrated in particular
areas, like the US Midwest and South, where manufacturing can be costlier and
less efficient than overseas. Shuttered factories serve as highly visible,
totemic warnings against open borders.
The far greater benefits of free trade are much less
obvious. Consumers get a wider variety of goods at cheaper prices. Middle-class
Americans gain an estimated
29% of their purchasing power from foreign trade. In other words, the
average middle-class American can buy 29% more for each dollar than if there
was no trade. The effect is even bigger – 62% – for the poorest tenth of
American consumers.
Trade makes exporters stronger,
more efficient, and more productive. The benefits are shared among workers:
Obama’s Council of Economic Advisers found that, on average, US
export-intensive industries pay workers up to 18% more than non-exporting
firms.
Opposition to free trade ignores our interconnected
reality. Some 80% of trade happens along supply chains within or organized by
transnational firms, according to a 2013 UN report. While some US politicians
call for tariffs against Mexico, the National Bureau of Economic Research
estimates that about 40% of the value of Mexican imports to the US is actually
added within the US itself.
These arguments are all part of the overwhelming economic
case for free trade. But the strongest argument is a moral one. Cost-benefit
analysis shows that freer trade is the single most powerful way to help the
world’s poorest citizens.
Reviving the moribund Doha Development Round of global
free-trade talks would reduce the number of people in poverty by an astonishing
145 million in 15 years, according to research commissioned by the Copenhagen
Consensus Center. The world would be $11 trillion richer each year by 2030,
with $7 trillion going to developing countries – equivalent to an extra $1,000
for every person every year in these countries by 2030.
Moreover, trade also carries much broader benefits for
society. Economic globalization has been shown to reduce child mortality
and extend life expectancy, owing to increased incomes and better
information. In the US, trade over the past half-century has increased
longevity significantly. In Uganda, freer trade in the past 35 years has been
shown to lengthen the average lifespan by 2-3 years.
What’s more, “free trade is good for the environment,” to
quote one academic study. This may seem counterintuitive. But, although each
10% increase in production leads to 2.5-5% more pollution, the higher income
from this output drives better technology and more stringent regulations, which
in turn reduces pollution by 12.5-15%. In total, a 10% increase in income
results in 10% less pollution. This
finding is supported by a study concluding that “trade tends to reduce three
measures of air pollution.”
At the same time, free trade has been shown to create
more jobs for women, reduce employment discrimination, and improve human-rights
conditions.
Of course, not everyone
benefits from freer trade. Some people lose their jobs, and some of them will
struggle to find other work. But it is important to have a sense of the size of
the problem.
One recent
study suggests that free trade increases income inequality, and the cost of
redistribution could erode upwards of 20% of the gains. This indicates we
should be willing to spend perhaps 20% of trade benefits on helping the losers
from trade deals, through job training and transitional social-welfare benefits
to ameliorate the risks.
But it also shows that 80% of the benefits stand – and
80% of $11 trillion is still a whopping $9 trillion in benefits to humanity –
on top of a reduction in lower poverty, child mortality, and pollution, higher
life expectancy, and less gender- and race-based discrimination.
While the US presidential candidates have adopted
protectionist rhetoric, so, too, did Obama as a candidate in 2008. Yet he
became an enthusiastic advocate of free-trade deals, especially in his second
term. Trade, he says, “has helped our economy much more than it has hurt.” As
he leaves office, he has declared this an area of “unfinished business.” So it
should be for us all, if we focus less on fears and more on facts.
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