Why in the News?
- Recently, the discussion acknowledged free trade’s nuanced and multifaceted nature, highlighting its potential benefits for peace and economic development while recognizing historical and contemporary challenges in promoting equitable outcomes.
Evolution of Free Trade ideology:
- 19th Century Political Reformers and Free Trade: Free trade was the rallying cry of 19th-century political reformers (Particularly Adam Smith who was inspired by Thomas Hobbes), who saw it as a vehicle for defeating despotism, ending wars, and reducing crushing inequalities in wealth.
- The era’s economic cosmopolitanism encapsulated progressive causes such as anti-militarism, anti-slavery, and anti-imperialism.
- US Populists and Opposition to Tariffs: US populists in the late 19th century staunchly opposed the gold standard but were also against import tariffs, which they thought benefited big business and harmed ordinary people.
- They pushed to replace tariffs with a more equitable progressive income tax.
- Socialists’ View on Free Trade in the Early 20th Century: Then, during the early part of the 20th century, many socialists viewed free trade, supported by supranational regulation, as the antidote to militarism, wealth gaps and monopolies.
- Liberal Reformers’ Perspective on Protectionism: The 19th-century liberals and reformers were free traders because they thought protectionism served retrograde interests, including landed aristocrats, business monopolies and warmongers.
- They believed economic nationalism went hand in hand with imperialism and aggression.
- Historian Marc-William Palen cites a 1919 essay by the economist Joseph Schumpeter, who depicted imperialism as a “monopolistic symptom of atavistic militarism and protectionism—an ailment that only democratic free-trade forces could cure.”
Perception and misconceptions of Free trade:
- Controversial Term-Free trade has been controversial in economics, with many people arguing that it contributes to rising inequality.
- However, there is a grain of truth in the anti-trade stance, as growing trade did contribute to rising inequality and the erosion of the middle class in the US and other advanced economies in recent decades.
- Blind Spot of Globalization – If free trade got a bad name, globalisation’s boosters ignored its downsides or acted as if nothing could be done about them.
- This blind spot empowered political leaders like Donald Trump to weaponize trade and demonize racial and ethnic minorities, immigrants, and economic rivals.
- Diverse Opposition: Antipathy to trade is not limited to right-wing populists but also includes radical leftists, climate activists, food safety advocates, human-rights campaigners, labor unions, consumer advocates, and anti-corporate groups.
- US President Joe Biden has distanced himself from free trade, believing that building a secure, green, equitable, and resilient US economy must take precedence over hyper-globalization.
- Obstacle to Social Justice: All progressives believe that free trade stands in the way of social justice.
Instrumentalisation of Trade:
1) Instrumentalized for Authoritarian end:
- Under American Revolution: A particularly egregious example is Antebellum America, where free trade entrenched slavery.
- During the drafting of the US Constitution in 1787, America’s slave-owning southerners ensured that the text would prohibit the taxation of exports. They understood that free trade would ensure that plantation agriculture remained profitable and safeguard the slavery system on which it was based.
- When the North defeated the South in the US Civil War, slavery was abolished, and free trade was replaced with protectionism, which suited Northern business interests better.
- Under British imperialism: After the repeal of the Corn Laws in 1846, the British government nominally abandoned protectionism and led Europe to sign free-trade agreements.
2) Instrumentalized for militaristic ends:
- In Africa, the Middle East, and Asia, free trade was imposed through the barrel of a gun whenever the British encountered weak potentates ruling over valuable commodities and markets.
- The British fought the infamous Opium Wars of the mid-19th century to force Chinese rulers to open their markets to British and other Western goods so that Western countries, in turn, could buy China’s tea, silk, and porcelain without draining their gold.
- The opium was grown in India; a British monopoly forced farmers to work under horrendous conditions that left long-term scars.
- Free trade served repression and war, and vice versa.
Post-World War II trade regime:
- The American architects of the International Trade Organization followed in the footsteps of Cordell Hull—President Franklin D. Roosevelt’s secretary of state—believing they were pursuing world peace through free trade.
- Hull was an economic cosmopolitan and a supporter of the 19th-century radical free-trade advocate Richard Cobden.
- The post-war order was meant to be a system of global rules that eliminated bilateralism and imperial privileges.
- While the US Congress ultimately failed to ratify the ITO, some of its key principles—including multilateralism and non-discrimination—survived in the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization (WTO) of today.
- Under GATT, commercial diplomacy replaced wars, and many non-Western countries—like Japan, South Korea, Taiwan and China—expanded their economies rapidly by leveraging global markets.
What are the present challenges to the Trade regime?
- Rise of Corporate Influence: Big corporations and multinational companies gained substantial power during this period, influencing trade negotiations to serve their interests.
- Neglect of Important Issues: Environmental concerns, public health, human rights, economic security, and domestic equity were overlooked as trade negotiations prioritized corporate interests.
- Departure from Original Vision: Trade deviated from the original vision of figures like Cobden and Hull, who likely envisioned it as a force for peace and prosperity, instead becoming a source of conflict.
- Shift in Trade Dynamics: The dominance of corporate influence shifted the focus of international trade away from broader societal welfare towards maximizing profits and corporate interests
Conclusion:
The lesson of history is that turning trade into a positive force requires democratizing it. This means that trade should work for the benefit of the broader public interest, not just for a select few. This is an important lesson to remember as the reconstruction of the world trade regime would occur in the years ahead.
Mains PYQ:
Q. What are the key areas of reform if the WTO has to survive in the present context of the ‘Trade War’, especially keeping in mind the interest of India? (UPSC 2018)
