Attitudes Are Changing

It's a simple truth: when times are good, individuals and nations are happy to work together. Many differences and distortions get papered over by the prospect of plentiful jobs, gushing profits, and the dream of prosperity for all.

When the pendulum swings the other way, however, people become defensive, suspicious and selfish. They are wary of giving up something now in exchange for future rewards because souring economic conditions means those promises are less likely to be honored.

In some ways, the mood shift resembles that which takes place before and after a stock, real estate, or other bubble bursts. As the bubble is being inflated, no one really pays too much attention to who is taking advantage because it seems like there is more than enough prosperity to go around.

Afterwards, most think about what they have lost and become resentful of those who did not end up in the same predicament. Rightly or wrongly, they blame others and become convinced that if they don't focus more intently on their own interests, they might end up with the short end of the stick again.

So it goes with free trade. When the global economy is booming, people are generally more inclined to accept the economists' argument that everybody wins when cross-border commerce is expanding.

But when conditions turn sour, attitudes change. People start talking about protecting their interests and preserving their wellbeing through economic and other barriers. According to the Associated Press, in a report entitled "As Global Crisis Worsens, APEC Summit's Free Trade Faith Is Questioned, Protectionism Looms," such sentiments already appear to be gaining momentum.

Leaders of 21 nations that represent half the global economy fear a raft of new protectionist barriers will strangle commerce as the world slides into a frightening recession.

There are growing signs that developing countries will erect protectionist barriers to weather the crisis, partly because they have seen that time after time, "free trade" agreements have focused chiefly on beating rivals to market.

Even free-trade disciples say many trade deals have been mishandled, limiting their ability to spread wealth and level the competitive playing field.

"These are not free trade agreements in any sense of the term," said Joseph Stiglitz, the Nobel Prize-winning economist. "They're really advantage-trade agreements. They're worse than NAFTA, which Obama says he wants to re-negotiate."

President-elect Barack Obama voiced distaste during his campaign for "unfair government subsidies to foreign exporters," said he'd cap subsidies to U.S. agribusinesses and promised treaties that would promote "trade that is free and fair for all." But he also sounded protectionist, saying he would "fix NAFTA so it works for American workers."

Economists generally concur that truly free trade erases inefficiences and inequalties, rewarding innovation and benefiting everyone with cheaper goods and services. President George W. Bush and other leaders unanimously endorsed it at the Asia-Pacific Economic Cooperation conference this past weekend.

But many say that what the APEC leaders tout as "free trade" devalues and distorts that admirable goal.

Since the early 1990s, nearly 400 free trade agreements have been reached, covering about a third of global trade. The latest deal, between Colombia and the four-country bloc of Iceland, Liechtenstein, Norway and Switzerland was signed Tuesday.

Most such agreements have been nation-to-nation and, invariably carry exemptions that protect domestic industries that politicians decided were vital.

All Canadian pacts, for example, protect Canada's milk, poultry and egg industries. The Peru-China pact signed last week exempts 10 percent of the Andean nation's industries, including clothing and shoes.

Even the 15-year-old North American Free Trade Agreement doesn't promote truly free trade. Among its protectionist provisions: 62.5 percent of an automobile's total parts must be made within the three member states — Canada, the United States and Mexico — in order for the car to cross a border.

President Felipe Calderon of Mexico has treated Obama's vow to renegotiate NAFTA like a sack of rotten fish, warning in Lima that if Obama is crazy enough to do it, it would set loose a tide of job-starved Mexicans that no U.S. border fence could possibly hold back.

Still, the agricultural subsidies by the United States and European nations represent huge infidelities to the free trade religion, and have paralyzed global trade talks since 2001.

"We are violating the rules all over the place with the subsidies that we're giving," said Stiglitz.

International food aid groups blame these subsidies — along with a conversion of farmland from food to biofuel — for increasing hunger across the developing world, where local food producers gave up growing crops that couldn't compete against subsidized imports. The imports then soared in price along with fuel costs, putting essential staples like rice and soy out of reach for the poor.

The United Nations predicts 130 million more people will join the chronically hungry population of 850 million by year's end.

"Full-scale trade liberalization with insufficient safeguards is the last thing these countries should be signing up for," Oxfam advocacy officer Romain Benicchio said of countries where subsistence farmers struggle to compete with subsidized food imports.

Since the global financial crisis struck in September, a few protectionist measures have been announced: India imposed a 20 percent duty on crude soybean oil last week and Ecuador announced new but unspecified tariffs on 800 "luxury goods" it did not name.

Indonesia's trade minister, Mari Pangestu, told The Associated Press that she expects her country — the world's fourth most populous — will need to put up some trade barriers, at least temporarily, to weather the downturn.

"You will have to end up protecting particular groups," she said. Three in five Indonesians are farmers and food price riots sparked the overthrow of the Suharto regime more than a decade ago.

The APEC leaders agreed to send negotiators to Geneva next month to urgently try to revive stalled Doha trade talks, but any new regional agreements seem moribund in the meantime. There's no chance for an APEC-wide agreement, said Vinod Aggarwal, director of the APEC Study Center at the University of California-Berkeley, and it's naive to believe open trade among China, Japan, the United States and South Korea could happen before 2015.

Bush proudly spoke in Lima of having more than quadrupled to 14 the number of U.S. trade agreements. But they include no major economies — Bahrain, Jordan and Israel are the typical size — and the Democratic-controlled U.S. Congress has resisted passing agreements with Colombia, Panama and South Korea.

Korea agreed during the summit to open talks on a pact with Peru, but has had less luck lately getting FTAs with bigger countries with domestic auto industries to worry about. Seoul's trade pact with Washington is moribund — the Democrats were against it even before they began trying to fashion a rescue package for the axle-busted U.S. auto industry. The biggest fear at the APEC summit was of a return to the huge trade barriers of the Great Depression, when some U.S. import duties reached 70 percent and world trade contracted by some 66 percent between 1929 and 1934.

Free-trade disciples wish the world had managed these treaties better.

"People now look at the financial crisis and the lesson they learn is, 'See, globalization doesn't work,'" Aggarwal said. "It's an unfortunate lesson but that's how they see it."

Comments

[JLS]

"There is no such thing as free trade".

Free trade theory created by David Ricardo has been proved but...
But is theroy is based on 3 hypothesis.
1) the trade balance shoud be rougly balanced.
2) Captial don't flow accross borders.
3) I don't remember may be Federal budget should be balanced.
For USA it's not case.

[roger]

When times are good....they are good only for some this
the result of domination & exploitation there is never nor
ever was a fair exchange in between Nations.Trade balance
What a SCAM!Spend some time in a 3rd. world country and see
how they feel about economic justice dished out by so called
civilized & rich countries.

[ron]

I like trade myself but something about the rise in multi-national companies and international money flows tells me not all is as it seems.
Bottom line Americans have been living a very high end life style relative to their incomes for an extended period doesn't look sustainable nor the idea that emerging markets can look towards the American consumer to provide their job look to promising. Lower standard of living for most Americans and lower expectations for emerging markets seem to be the order of the day.

[Black Star Ranch]

Am I correct in assuming that some feel that the definition of "Free Trade" might also include subsidies, tariffs, duties, rebates, set-asides, and/or exclusions for imports and/or exports?

Wouldn't some forms of isolationist trading strategies help OUR Country during THIS specific difficult period?

And finally, are there still advantages to having 300-million of the best "customers" in the world (even with a diminished level of buying power)?