Populist politicians (6.3.2.5) tend to play to people’s misinformed perceptions of free trade rather than to explain its benefits. It is very easy to argue that a country's economic problems are due to unfair competition from other countries, but politicians should also point out that the availability of low-cost goods frees up people's disposable incomes to spend on other things that they want – such as services for example.
The BBC published a report on 17 September 2012, Protectionism: Is it on the way back?, which drew attention to several countries where the politicians were advocating trade restrictions. In France, for example:
“The recent French presidential election saw both the successful challenger, Francois Hollande, and the defeated incumbent, Nicolas Sarkozy, stepping up their protectionist rhetoric in an effort to woo the 80% of voters who are anti-globalisation.”
American politicians also succumb to populism, despite the long-term damage inflicted on their own country and the rest of the world. Donald Trump followed this pattern in both his first and second terms of office. He campaigned against President Obama's proposed trade agreements, and then cancelled them when he won the Presidency in 2016. An Economist article in February 2014, American trade policy: How to make the world $600 billion poorer, included this assessment:
“Reasonable estimates say that the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) could boost the world’s annual output by $600 billion—equivalent to adding another Saudi Arabia. Some $200 billion of that would accrue to America.”
Trump went even further in 2025. He imposed 10% tariffs on almost all the countries in the world and 145% on most goods from China. The World Trade Organisation (WTO) forecast that US tariffs will make global trade shrink:
“"The decline is expected to be particularly steep in North America," the WTO said, forecasting trade to drop by more than a tenth in that region.
… The WTO previously expected global goods trade to expand by 2.7% in 2025 but it now forecasts it will fall by 0.2%.
… Also on Wednesday, the UN trade and development body, UNCTAD, released its own report which forecasts global growth to slow to 2.3% in 2025 due to escalating trade tensions and uncertainty.
It said the projection was below "the 2.5% threshold widely viewed as signalling a global recession"”
As described earlier (3.3.7.1), politicians are often tempted to apply tariffs to imports, or grant subsidies, to give a competitive advantage to a favoured domestic industry. This is politically popular, but it should not be forgotten that protecting one group of workers results in increased costs for everyone else in the country that applies the tariffs.
That country’s economy is further damaged when its exporters are hit with retaliatory tariffs imposed by other countries. All participating countries are harmed by a trade war – and they are sacrificing the benefits of free trade that were described in the previous sub-section (3.5.4.1).
The EU’s ‘single market’ is a negotiated free-trade area which has enabled its companies to operate on a larger scale, so that their prices are lower and they can compete with American companies. Despite having made an early start, though, there are many practical barriers to trade within the EU; on 12 October 2012, The Economist published an article entitled Coming off the rails, which listed several impediments to cross-border trade in the EU – including different railway gauges.
The EU subsidises agriculture with what it describes as a partnership between Europe and Farmers. Its aims include a desire to be self-sufficient in food (having experienced shortages during the world wars) and a desire to protect the countryside and its way of life from change. This policy, though, results in the inevitable impact of economic protectionism: Europeans pay more than necessary for their food. The policy is politically contentious, especially in countries with fewer farmers. A BBC article, Q&A: Reform of EU farm policy, reported some of the criticisms made of it and some suggested reforms.
Some politicians advocate trying to protect new industries in developing countries until they are strong enough to compete without assistance, as described later (3.5.8.3). John Elliott’s article in Fortune magazine in 2007, Manufacturing Takes Off, pointed out that this strategy didn’t work for India however:
“What they [Nehru and Indira Gandhi] unwittingly created was an inward-looking, highly protected, and inefficient economy that did little for the poor, negated private-sector entrepreneurship, allowed public-sector inefficiency, and guaranteed infrastructure decay.”
The article focused on India’s rapid economic progress since Manmohan Singh liberalised its economy in the mid-1990s.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).