Trade – tyranny or triumph?

Red river, HanoiBefore the creation of Brasilia, Johannesburg (then the world’s 80th largest) was the biggest city not on a major waterway. Great cities are the gateways to the trade routes that are often the Earth’s waterways. That surprising fact confirms the importance of trade as the source of economic growth. There is a lot of debate about who benefits from that wealth.

What’s interesting is that China’s establishment as an economic powerhouse is directly linked to the country joining the World Trade Organization in 2001. And that lifted 400 million people out of poverty, doing more to achieve the Millennium Development Goals than all the millions of dollars that aid agencies dedicated to those objectives.

At the beginning of the 16th century China and India represented 50% of the world’s economy. After Marco Polo had introduced Europe to Eastern goods, traders convinced their governments, Portugal, then Holland, followed by the British (who built an Empire on trade) to find trade routes to the East. And they did.

For centuries economists have been telling us that trade is good. Over two hundred years ago, Adam Smith in his seminal work, the Wealth of Nations, explained the benefits of trade. Simply stated, through trade – goods are cheaper and consumers benefit from the lower prices.

But when the manufacture of goods moves off-shore, jobs in the local economy are lost. Historically economists have argued that the workers adapt, learning new skills, and move to places offering jobs that need those skills.

Those economists have probably never experienced the trauma of losing a job, surrounded by friends who have lost theirs, without the resources to develop the new skills and the money to move to an unfamiliar place in the hope of getting a job, that often demands prior experience.

Lately some economists have uncovered the error in their thinking. They have discovered that many people who become unemployed as their jobs move off-shore eventually stop looking for work.

In Europe they are voting for the fringe parties that believe that the Union is a failure. In America they are voting for Donald Trump.

Their answer is to build walls, and end trade. Building islands of isolation.

That does not work. South Africa was forced into isolation during the apartheid years, and that eventually destroyed the economy. The desperate state of the economy forced De Klerk to release Mandela, and call a referendum asking whether everyone should be given the right to vote. And the privileged, faced with economic collapse, gave up their status.

Until then, South Africa’s businesses, sheltered from international competition became ever less efficient, and goods became more and more expensive creating the curse of rampant inflation. The prime overdraft rate reached an unaffordable 25%. Businesses were collapsing and unemployment rocketed.

And that is what Trump and his European counterparts are wishing on their constituencies.

Targeting trade is killing the goose that lays the golden egg. The answer is to acknowledge that while the majority of the population benefits from trade deals, there are some people for whom upheaval is their only prospect. The affected businesses can afford to lobby and they make sure that their interests are more than looked after. It is the ordinary voters, whose elected representatives are failing them, that need to have their interests protected, and included as a part of any trade arrangement. The deal for them should be so good that they are the most vocal champions of the trade alliance.

Until that happens, the world’s economy which is struggling to move forward, will steadily move in the opposite direction.

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