The two faces of free trade
Project Syndicate | 8 March 2024
The two faces of free trade
by Dani Rodrik
Whereas free trade was once the central cause of progressive reformers seeking to combat entrenched interests on behalf of ordinary people, now it is the bête noire of both right-wing nationalists and the mainstream left. To understand why attitudes changed so radically, one must follow the money.
CAMBRIDGE – Few terms in economics are as ideologically loaded as “free
trade.” Advocate it nowadays, and you are likely to be regarded as an
apologist for plutocrats, financiers, and footloose corporations. Defend open
economic borders, and you will be labeled naive or, worse, a stooge of the
Communist Party of China who cares little about human rights or the fate of
ordinary workers at home.
As with all caricatures, there is a grain of truth in the anti-trade stance.
Growing trade did contribute to rising inequality and the erosion of the
middle class in the United States and other advanced economies in recent
decades. If free trade got a bad name, that is because globalization’s
boosters ignored its downsides or acted as if nothing could be done about
them. This blind spot empowered demagogues like Donald Trump to
weaponize trade and demonize racial and ethnic minorities, immigrants, and
economic rivals.
Nor is antipathy to trade the province only of right-wing populists. It also
includes radical leftists, climate activists, food-safety advocates, human-
rights campaigners, labor unions, consumer advocates, and anti-corporate
groups. US President Joe Biden, too, has noticeably distanced himself from
free trade. His administration believes that building a secure, green,
equitable, and resilient US economy must take precedence over hyper-
globalization. All progressives, it seems, believe that free trade stands in the
way of social justice, however understood.
It wasn’t always this way. Free trade was the rallying cry of nineteenth-
century political reformers, who saw it as a vehicle for defeating despotism,
ending wars, and reducing crushing inequalities in wealth. As University of
Exeter historian Marc-William Palen reminds us in Pax Economica: Left-Wing
Visions of a Free Trade World, the era’s economic cosmopolitanism
encapsulated progressive causes such as anti-militarism, anti-slavery, and
anti-imperialism.
And it wasn’t just political liberals who supported free trade. US populists in
the late nineteenth century staunchly opposed the gold standard, but they
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. Then, during the early part of the
twentieth century, many socialists viewed free trade, supported by
supranational regulation, as the antidote to militarism, wealth gaps, and
monopolies.
These conflicting views would seem to pose a conundrum. Does trade
promote peace, freedom, and economic opportunity, or does it foster
conflict, repression, and inequality? In fact, the enigma is more apparent
than real. Either outcome – or anything in between – depends on whom
trade empowers.
Nineteenth-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. 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.”
It was this vision that informed the post-World War II international trade
system. 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 devotee of the nineteenth-
century radical free-trade advocate Richard Cobden. Unlike previous
regimes, the postwar order was meant to be a system of global rules that did
away with 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.
But trade can be instrumentalized just as easily for authoritarian and
militaristic ends. A particularly egregious example is Antebellum America,
where free trade served to entrench slavery. During the drafting of the US
Constitution in 1787, slave-owning Southerners ensured that the text would
prohibit the taxation of exports. They well understood that free trade would
ensure that plantation agriculture remained profitable and safeguard the
system of slavery on which it was based. When the North defeated the South
in the Civil War, slavery was abolished and free trade was replaced with
protectionism, which suited Northern business interests better.
The situation under British imperialism was similar. After the repeal of the
Corn Laws in 1846, the British government nominally turned its back on
protectionism and led Europe in signing free-trade agreements. But 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-nineteenth century
to force Chinese rulers to open their markets to British and other Western
goods (opium chief among them), so that Western countries in turn could
buy China’s tea, silk, and porcelain without draining their gold. The opium
was grown in India, where, as Amitav Ghosh details in his new book, Smoke
and Ashes, a British monopoly forced farmers to work under horrendous
conditions that left long-term scars. Free trade served repression and war,
and vice versa.
The post-WWII regime of multilateral free trade under American leadership
would fare much better. Under GATT, commercial diplomacy replaced wars,
and many non-Western countries – such as Japan, South Korea, Taiwan, and,
most spectacularly, China – expanded their economies rapidly by leveraging
global markets.
By the 1990s, however, the trade regime had become a victim of its own
success. Large corporations and multinationals, empowered by the
expansion of the global economy, increasingly drove trade negotiations. The
environment, public health, human rights, economic security, and domestic
equity took a back seat. International trade had yet again moved away from
Cobden and Hull’s original vision, turning into a source of international
discord instead of harmony.
The lesson of history is that turning trade into a positive force requires that
we democratize it. That is the only way to ensure it serves the common
good, rather than narrow interests – an important lesson to keep in mind as
we reconstruct the world trade regime in the years ahead.
