lomborg138_Saul Loeb_AFP_Getty Images_tpp protest

Economics

El milagro del libre comercio

Oct 21, 2016 Bjørn Lomborg

PRAGA – El libre comercio internacional es la oportunidad más grande de mejorar el bienestar humano en la próxima década y media. Ya ayudó a sacar de la pobreza a más de mil millones de personas en el último cuarto de siglo. Y en los próximos quince años, reducir más las barreras al comercio puede duplicar el ingreso medio de las regiones más pobres del mundo.

Sí, el libre comercio conlleva costos que hay que encarar mejor; pero son ampliamente superados por los beneficios. Sin embargo, en los países ricos, hoy los ánimos están en su contra. Es trágico que así sea.

En ningún lugar la oposición al libre comercio es más clara que en Estados Unidos. Sin importar quién venza la elección presidencial de noviembre, el próximo ocupante de la Casa Blanca será un escéptico en la materia. Tanto Hillary Clinton como Donald Trump se oponen a la mayor iniciativa comercial lanzada por el gobierno del presidente Barack Obama (el Acuerdo Transpacífico – ATP – con otros once países de la Cuenca del Pacífico) y los dos quieren revisar el Tratado de Libre Comercio de América del Norte (NAFTA), que está en vigor desde 1994.

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Bjørn Lomborg

Writing for PS since 2005
181 Commentaries

Bjørn Lomborg, a visiting professor at the Copenhagen Business School, is Director of the Copenhagen Consensus Center. His books include The Skeptical Environmentalist, Cool It, How to Spend $75 Billion to Make the World a Better Place, The Nobel Laureates' Guide to the Smartest Targets for the World, and, most recently, Prioritizing Development. In 2004, he was named one of Time magazine's 100 most influential people for his research on the smartest ways to help the world.

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0 Comments on this paragraph, 38 Comments on this article

Andy Sandberg Nov 6, 2016

When a person believes in something (an ideology, utopia, religion, neoclassical economics, neoliberalism etc.) without questioning it, it pretty much makes him/her blind to see in the world of science. What about cause and effect on trade deals, neoliberalism etc.? What about what is wrong and right? The experience we've had with these so called free-trade deals (benefiting mostly banks, multi-national corporations hence the rich and wealthy) is clear cut negative for the average worker Joe or Jane out here in the West. It is no secret that shifting production to third world countries making workers in the West compete with the workers' salary in third world countries has really been harmful. What about workers rights? Human rights? What about harms of financialization and the de-regulation of Western countries? What about the rise of extremism as poverty and income equalities are at record high after certain economic policies have been made? What about free movement of capital - but not labour? These are only a few examples but show how bad things are in the West, which is at the brink of financial collapse (not to mention environmental) once again after "freeing the trade" since the 1970's. What about how our democracies are under constant attack from the elite class wanting these trade deals. Sadly we still have a portion of highly trained people trying to indoctrinate us with this nonsense. In a world of science it is no shame if a scientist changes his/her mind when he/she gets more information and sees that facts are overwhelming.
Respectfully Yours
Andrei Sandberg
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Janet Tanner-Tremaine Oct 29, 2016

I remember reading an article by Bernie Sanders a while ago and seeing pictures of deserted, broken towns across the USA - all he said the result of NAFTA. Hope politicians have now learned the lesson and do not sign up to these elitist, narrow trading blocs that bar trade from less sophisticated countries around the world, by imposing fees and tariffs the in the end exclude them from trading at all. The EU (and the UK by being a member) was guilty of killing trade with Africa and they must in some measure be held responsible for desperate people making the journey to find work to support their families. One of the worst examples was the way the EU acted in West Africa - cutting local fishermen out of trade by funding very large factory ships for Spain and Portugal to out-fish the native fishermen in their little, non-competitive boats and dug-outs, all without any thought as to fish stocks. Things have improved a little now but the damage has been done and will take decades to repair. The EU should be disbanded and the remaining 27 member states after the UK has left, should return to old trading customs such as Italy with Libya, the UK with the rest of the Commonwealth countries, and many other traditional trading partners and over time, I feel very positive that the economies of the world will improve. Another very pertinent issue is that of birth control so that struggling economies can at least support their populations and grow the required infrastructures to engage with these new trade links. A very good analogy of why controlling numbers of people is available on a video called "World Poverty & Gumballs". It is excellent.
I will try to share a link and you will of course need to be able to view on You Tube: https://youtu.be/LPjzfGChGlE
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John Zhu Oct 25, 2016

What about the liberal case for free trade? Outside of a few reasonable exceptions, governments have no business infringing people's liberty to buy goods where they will.
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Wayne Lusvardi Oct 24, 2016

Look, there is a global economy and local economies. What the globalist economy has done with Zero Interest Rate Policy (ZIRP) is wipe out local economies and force people to put money in the stock market or having it erode in value in banks. This is a wealth transfer from the private working class to the elite investor class and public unions. ZIRP creates an economy based on asset and commodity bubbles and on arbitraging instead of making profits. So the stock market has tripled since 2009 but it is artificial and not based on profits. What is needed is to restore local economies and return to a pluralistic and mixed economy instead of the One-Size-Fits-All Economy extolled by Lomborg. The false Global Economy is bound to crash again as it did in 2008. An antidote is to restore local economies while continuing global markets in agriculture, cars, etc. So Lomborg is half right; but also half wrong.
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Jose araujo Oct 24, 2016

Mr. Lomborg, like usual, forgot to take his blinders before writing the article. For each plus for free trade, we can think of a minus. Like for instance the exporting industry, how many countries have reigning oligarchies fueled by exporting industries that anchor the country in low level development economies?

There are also the externalities that determine that not always the production will flow to the most efficient country, but rather to the more central country, where location and consequent scale economies are more powerful.

Labor specialization and comparative advantages are a blocker of innovation, which is one of the most powerful tools for development, much much more than efficiency
- Mr Econotarian Oct 28, 2016
  
  There are few countries with open import markets that are authoritarian. When you import things, you are welcoming in foreign ideas. When China was trade isolated from the world, it starved 20 million people to death in the Great Leap Forward and killed another million or so in the Cultural Revolution. China is not the most free country today, but it is far better than it was before becoming a major exporter. It could become even more open to imports with a trade deal. Also see the import limitations of the Soviet Union and how western products like blue jeans helped cause a backlash against Stalinism.
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Jose araujo Oct 24, 2016

Back to 19th century discussions are we? This reductionist, simplistic approach takes us nowhere. Economies are much more complex and linked to allow us to make such statements like “free-trade miracle”.

Like most things in life, there is good trade and bad trade (remember the opium wars), and there is good protectionism (Korea comes to mind) and bad protectionism.

Free trade for most of us will always be a synonym of colonialism
- Jose araujo Oct 24, 2016
  
  I was talking about South Korean, Japan and Taiwai proteccionism.
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Brian Kullman Oct 24, 2016

Text-book arguments (a la Ricardo) for free trade treat labor as a freely-exchangeable input to production. If a worker loses a job in textiles in NC, then that worker just leaves for a better paying job as a machinist in Washington State.

The real world does not work that way. Labor inputs to production are highly immobile, and not interchangeable across skill sets. The track record for job retraining/relocation is dismal.

SS Disability for the 50+ year old has become the dumping ground for displaced workers too old to learn a new trade, too old to relocate to new environs.

We in the US sweep the dislocated casualties of "free trade" under the rug. Mexico exported its trade refugees (of unemployed peasant farmers) to the US.
- Mr Econotarian Oct 28, 2016
  
  There is no excuse for the reduction in labor mobility in the US. A major part is NIMBYism against building new housing in the most productive urban areas, which artificially increases housing costs in those areas with jobs. Also the mortgage interest deduction on a primary home keeps many people from moving away from "underwater" houses. Rather than blame trade which provides 30% to 60% of your purchasing power, the US should fix its barriers to labor movement. Also unneeded state licensing rules should be abolished (no need to take 2 years of schooling to get a license to braid hair, for instance).
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Colin Doyle Oct 24, 2016

How is it possible to write about 'Free-Trade Miracle' without using the word 'balance' ? Free trade is only good in principle, if it is balanced. At Bretton Woods Keynes wanted an automatic system, the 'banco', to stop countries systematically running large surpluses, like China in recent times. The USA opposed him then. If they worked together now, the USA and the EU could finally put the banco in place.

In principle, the banco works like an intermediate floating trade currency, which has to be exchanged into local currencies for trade with other countries. By supply and demand, it would cut the income for exporters and cheapen imports if a country piled up surpluses - the opposite for countries which import more than they export. Of course, current currency markets are supposed to do the same. But they don't . In distinction, the banco would be automatically linked to trade flows. Keynes also proposed a managed version of the system, with penalties on countries that did not come into balance.
- Colin Doyle Oct 30, 2016
  
  To Mr Econotarian. These are not just questions of accounting transactions between countries. There are real issues of power behind it all. Cheap imports kill jobs in western countries and slow down advances in automated manufacturing, to the long term detriment of those countries. Balanced exchanges would mean a rising tide of trade, creating extra prosperity for everyone.
  As 'economics is a means to obtain political objectives, politically, do you want that countries like China - and in the EU, Germany, should be allowed to go on running enormous, systematic surpluses and buy up other people's productive assets ?
  Kindly define your political objective.
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- Mr Econotarian Oct 28, 2016
  
  Trade is balanced by investment. When a country has a trade surplus (a positive trade balance), national saving must, by definition, exceed domestic investment. That is, a country with a current account surplus is also a net lender (this country uses savings that is not invested domestically to make loans to foreigners). When a country has a current account deficit, national saving must, by definition, be below investment. In this case, the country is a net borrower (as national saving is not sufficient to finance all of domestic investment, and so the extra investment must be financed by borrowing from abroad).
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Matthew Kilburn Oct 24, 2016

"Cost-benefit analysis shows that freer trade is the single most powerful way to help the world’s poorest citizens"

Perhaps so. China and Mexico and Vietnam and so on have undeniably benefited enormously from the trade policies of developed nations. But why do I, as an American voter, have a greater duty to the citizens of China and Mexico and Vietnam than to my own neighbors...perhaps even my own children?

You speak of the costs of trade as if thry were small and few and isolated. That isn't the reality. Entire regions have been crippled economically by our trade policies, and you've denied entire generations access to the life track that their fathers and gradfathers knew.
- Mr Econotarian Oct 28, 2016
  
  Your US kids and neighbors benefit 30% to 60% of their purchasing power from trade.
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Stefan Siewert Oct 24, 2016

No, sorry, the main conclusion is wrong, wrong and wrong. The issue is not about free trade or closed borders. This is only a ivory-tower discussion. The issue is rather about the limits of a the current growth model and whether the current social contract holds. It looks that we are on the eve of a major institutional re-alignment, as it happens several times in history, usually with huge costs in terms of human sacrifies (30 % of population 1618-1648 that gave the Peace of Westphalia, American Civil War, consuming 2 % of population and 2 World Wars that ended in a US-led global framework for 70 years of (relative high) growth, peace and prosperity.
To say that trade is good and closed borders are bad does not reflect the complexity of the issue at hand. Other, much stronger trends are at play that cannot be reduced whether trade is good or bad.
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Robert REYNOLDS Oct 23, 2016

Global free trade will only be acceptable to me when it is carried out under the auspices of a world socialist government that is open and ensures. as best as possible, a fair outcome for all.
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Fritz Mustermann Oct 23, 2016

>Opposition to free trade ignores our interconnected reality. <

On the contrary. opposing groups know very well that a business decision, made somewhere may alter the life for many peoples without any chance to do something about.
We are all at the mercy of mercy less people.
Thanks but no thanks. Globalisation needs rules.
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Louis Stouch Oct 23, 2016

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. ...........

Spoken like a true globalist. Helping those poorest citizens by definition means hurting someone else (who used to have that job). Trade is a zero sum game. The real beneficiaries are the transnational corporations and their shareholders.
- Mr Econotarian Oct 28, 2016
  
  The real beneficiaries of trade are average Americans, whose purchasing power is 30% to 60% higher due to trade.
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C. Hazen Oct 23, 2016

The essay attempts to distil an infinitely complex global governance and international relations problem shared by eight billion humans into a few hundred words including those advocating a fundamental solution that all people should hold an unalloyed pro-free-trade attitude. The infinite complexity mocks any such attempt. One major manifestation of said complexity is that the faltering free trade agreements venerated by the author are laced with excisions of national sovereignty the necessity of which one finds nowhere throughout classic pro-free-trade economics literature.
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Patrick Newman Oct 23, 2016

China's success at lifting the best part of a billion out of poverty does not have much to do with free trade and more to do with dumping cheap goods on the west by a system that is far removed from free enterprise. Why have so much of the working population of the west hardly benefited from so called free trade for decades. You will be telling us CETA and TTIP are free trade at a more advanced stage!
- Mr Econotarian Oct 28, 2016
  
  Privately-owned companies are driving China's growth. Only 25% of China's gross industrial output comes from state-owned enterprises, most comes from private companies. Look at Foxconn, the company that assembles iPhones in China. It isn't even a PRC company, it is Taiwanese, and publicly traded on the London Stock Exchange. China state-owned enterprises tend to be in moribund industries like In tobacco manufacture, electric-power generation and oil extraction, as opposed to exported consumer goods and electronics.
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Stephan Klee Oct 23, 2016

What puzzles me, is that the author as a skeptical environmentalist, does not touch the topic, that the full price of these low prices “everybody” profits from, have to be paid later as the free trade miracle backlashes as climate change will drive millions of people back to poverty - https://www.theguardian.com/global-development/2016/oct/17/climate-change-could-drive-122m-more-people-into-extreme-poverty-by-2030-un-united-nations-report.
- Mr Econotarian Oct 28, 2016
  
  The report claims that farming communities in sub-Saharan Africa among the hardest hit. Thus, perhaps sub-Saharan countries would be wise to reduce their extreme economic barriers to export-lead growth, and perhaps reviving the Doha Development Round of free trade talks would help.
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Andrés Galia Oct 23, 2016

According to the author of this note: "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. "

The above statement is based on the assumption that the people that will make that gain will still have a job and money to buy what is produced elsewhere. The problem is that that is not the case. Free trade for the only thing it helps is to increase the gains of big corporations. Otherwise how can one explain than 60 people around make more money than 3.5 billion people (OXFAM estimate) ? The gap between the richer classes and the rest of us keep widening thanks to free trade. Why do people resent from free trade? Is it because they are stupid or they suffer the consequences of it? Capitalism is based on consumption and in order for people to consume they need to have a job. The big corporations do not care about who buys their goods, so they couldn't give a dime if middle-class Americans or Canadians or British or Germans cannot buy as long as there is somebody else than can.
- Mr Econotarian Oct 28, 2016
  
  There are plenty of jobs in the US. The US unemployment rate is 5%, which is on the low end of rates over the last 50 years. Not sure why the EU unemployment rate is 8.6% - might be labor regulation.
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Norm Winn Oct 23, 2016

Mark St. Angelo comments are spot on! At the risk of sounding insensitive, the displaced worker in the US could care less about helping lift millions out of poverty. They are rightly concerned about not entering poverty themselves.

That said, far too many discussions of "free trade" seem to place blame for job losses on trade, which is ignorant at best, totally divisive at worst. Several months ago I read an article that estimated the US economy has permanently lost 7.5-8.5 million jobs since 2000. Of that total, approximately 1 million jobs were lost as a result of NAFTA. Another approximately 2 million jobs were lost as a result of our trade imbalance with China, which is NOT due to free trade. The balance of job losses were attributable to technological advances - robotics, process automation, smart networks, etc. The article went on to estimate another 40+ million jobs will be lost over the next 20-30 years as technological advancements eliminate not just manufacturing jobs, but jobs within the services and administrative fields as well. Coupled with the jobs already lost, that represents nearly a quarter of US employment.

You can have all the free trade you want. If people don't have jobs and adequate income to support their families, just who will buy all the cheap crap being traded?

I surely don't have an answer. We can't stop innovating and I doubt the majority of the 45-50 million displaced workers will have the means or opportunity to seek retraining or go back to school in order to enter a new career field. In the meantime, employers are continually looking for ways to reduce overhead, which inevitably translates into fewer full time, benefitted employees. And the concept of transfer payments is so flawed I won't even go there. So what is the answer? I'd really like to see the economists and politicos from both sides of the aisle address this coming crisis with real world, cost efficient but effective and fair proposals.

Then again, I'd also like to win the lottery...
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M M Oct 22, 2016

There is nothing "Free" in this life except the meals that are being offered to homeless people in shelters or at food banks. There again, these are not entirely "Free" when one factors in the cost of preparation, distribution, handling, etc....
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Mark St. Angelo Oct 22, 2016

The problem that I think most economists have when addressing the issue of what is euphemistically called "free trade" is that they think in terms of the benefit for the world and the indirect benefits that some consumers receive. Most people, on the other hand, think of how a particular "free trade" deal impacts them directly.

Thus, to an economist a trade deal that enables millions of Chinese to work in factories and live in crowded cities while manufacturing steel and other products once made in the United States is a good deal. However, to the thousands of steel workers in the US who lost their jobs and the thousands of other owners of small businesses who were dependent on those steel workers as customers, the fact that structural steel for buildings is now cheaper (and of uncertain quality) is not a sufficient benefit to outweigh the costs.

In addition, the documents generally referred to as "free trade" pacts in reality are "managed trade" deals that are designed to help certain corporations or industries. That's why the documents themselves are so long and complicated. A true "free trade" deal between two countries, or even a group of countries, would be relatively short and uncomplicated.
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thomas greaves Oct 21, 2016

The cost of the free trade miracle is dangerous, terrifying, and it is leading to political polarisation, internecine conflicts that will destroy national unity in every country affected by it. It's absolutely crazy to imagine that free trade benefits the world; it benefits multi national corporation profits. Human beings are not machines to be engineered to suit consumerism.
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Emre Berkay Oct 21, 2016

If we are talking about lifting millions out of poverty, then we are talking about China, aren't we? Well, it was never "free trade" per se, but rather regulated, controlled trade that achieved this, China never embraced a laissez-faire kinda approach to trade, which pro-free traders are so keen with their TPPs and so on.
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dan baur Oct 21, 2016

Trade agreements are not Free Trade, but negotiated deals which, understandably, some people would like to renegotiate. Free Trade deals are one page documents. Do you know any such document?
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stephan Edwards Oct 21, 2016

Benefits for who professor? Having watched 2 jobs shipped to the third world where they pay 5 dollars a day. At a third I was forced to train my own H1B replacement to collect my severance pay. In real terms my wages are half what they were 10 years ago. Maybe I do have more buying but not at half the wages. Has for trade adjustment that is the biggest joke of the last 40 years. Has far as you are concerned my going into poverty is a good thing for the 3rd world maybe it is I do not care. If you want to be reduced to poverty to help the 3rd world that's your choice it is not mine. You want to make sacrifices to help the 3rd world you make them we who work for hourly wages are bloody tired of sacrificing for the corporations excuse I mean the poor and trodden down 3rd world.
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Alisdair Hamilton-Wilkes Oct 21, 2016

“UK’s Brexit referendum result, widely interpreted as a vote for protectionism.” The article you link to as a reference contains no such assertion. I agree that other individuals on ProSyn and similar sites hold such opinions but polling data both pre and post Jun 23rd does not support this statement.

It’s a shame because the article is otherwise a persuasive and forceful argument in support of free trade.
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M M Oct 21, 2016

Do you want Free Trade? Look no further than the clear divide that Free Trade &Movement has created between the countries In the EU. A pretty picture, isn't?
- M M Oct 21, 2016
  
  Dan, Free Trade taken in isolation of other factors in the EU, correct did not create the divide, but the author of this article is making it look like iFree Trade is a blessing from heaven.
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- dan baur Oct 21, 2016
  
  Free trade has not created the divide. Aberrant local labor laws and taxation have.
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