For the Elites, By the Elites
"Free trade" seems to be in deep trouble in the United States, with serious implications for the rest of the world.
Opposition to free trade or trade agreements emerged as a big theme among the leading American presidential candidates.
Donald Trump attacked cheap imports especially from China and threatened to raise tariffs. Hillary Clinton criticised the Trans-Pacific Partnership Agreement (TPPA) which she once championed, and Bernie Sanders' opposition to free trade agreements (FTAs) helped him win in many states before the New York primary.
That trade became such a hot topic in the campaigns reflects a strong anti-free trade sentiment on the ground.
Almost six million jobs were lost in the US manufacturing sector from 1999 to 2011.
Wages have remained stagnant while the incomes of the top one percent of Americans have shot up.
Rightly or wrongly, many Americans blame these problems on US trade policy and FTAs.
The downside of trade agreements have been highlighted by economists like Joseph Stiglitz and by labour unions and NGOs. But the benefits of "free trade" have been touted by almost all mainstream economists and journalists.
Recently, however, the establishment media have published many articles on the collapse of popular support for free trade in the US.
The Economist, with a cover sub-titled "America turns against free trade", lamented how mainstream politicians are pouring fuel on the anti-free trade fire. While maintaining that free trade still deserves full support, it cites studies showing that the losses from free trade are more concentrated and longer-lasting than had been assumed.
But orthodox economists argue that free trade is beneficial because consumers enjoy cheaper goods. They recognise that companies that can't compete with imports close and workers get retrenched. But they assume that there will be new businesses generated by exports and the retrenched workers will shift there, so that overall there will be higher productivity and no net job loss.
However, new research shows that this 'positive adjustment' can take longer than anticipated or may not take place at all.
US scepticism on the benefits of free trade has also now affected the multilateral arena. At the World Trade Organisation, the US is now refusing attempts to complete the Doha Round.
More US protectionism is now likely. Trump has threatened to slap high tariffs on Chinese goods. Even if this crude method is not used, the US can increasingly use less direct methods such as anti-dumping actions. Affected countries will then retaliate, resulting in a spiral.
This turn of events is ironic.
For decades, the West has put high pressure on developing countries, even the poorest among them, to liberalise their trade.
A few countries, mainly Asian, staged their liberalisation carefully and benefited from industrialised exports which could pay for their increased imports.
However, countries with a weak capacity, especially in Africa, saw the collapse of their industries and farms as cheap imports replaced local products.
Ironically, it is now the US establishment that is facing people's opposition to the free trade logic.
For one thing the developed countries have not really practised free trade. Their high-cost agriculture sector is kept afloat by extremely high subsidies, which enable them to keep out imports and, worse, to sell their subsidised farm products to the rest of the world at artificially low prices.
Eliminating these subsidies or reducing them sharply was the top priority at the WTO's Doha Agenda. But this is, being jettisoned by the insistence of developed countries that the Doha Round is dead.
Vol. 49, No.9, Sep 4 - 10, 2016