Looking out from Harvard Square, it is easy to lament the sclerotic pace of trade liberalization. The European Union and United States have been throwing scrap metal and agricultural produce at one another as if they were in some kind of domestic dispute, with the World Trade Organization playing marriage counselor.
The Bush administration has moved from strong words to pleas in attempts to make the Chinese revalue the Yuan as the U.S. dollar’s value has slid, and the only substantial victory seems to be a free trade deal with Australia to which the agricultural lobby of the U.S. was brought kicking and screaming to the table, such that the deal took nine months longer to bring forth. With that kind of resistance, a free trade deal with a larger country does not look promising.
There is not much that can be said against free trade in the vast majority of cases. It increases incomes. It facilitates the transfer of not only money, but values—look to the countries where the U.S. has enforced embargoes and those with which we have traded freely. It is hard not to think that trade must have something to do with why, for example, we have better relations with China than Cuba. Furthermore, raising these incomes tends to strengthen governments, who can then make the transition to paying their civil servants well and establishing better institutions. With greater decentralization of production and more and more personalization of products, it is also harder for one nation to dominate an industry wholesale. Indeed, trade often forces old industries to reinvent themselves rather than completely disappear from a particular city or state.
With all that said, it remains a little perplexing to the international community just how willing this country is to go to war to spread liberal, democratic values and capitalism and how little it does to spread them by offering them the olive branch of free trade. Embargoes have been shown to be an utter failure in forcing the capitulation of governments.
Exporting products is also a way of exporting ideas; as such we should only go to war when trade has failed. Iraq has been expensive and bloody and is something that we can hardly afford to replicate in Iran, Myanmar or Cuba. Would it be too much to ask to open up to these countries and then see what this country can do?
Fortunately, this country is not the only champion of free trade in this world. A practice that fundamentally improves people’s well being can seldom stay rare. The expansion of the E.U. bloc is well covered in the media, but the changes afoot in Asia are more remarkable. Abdullah Badawi, Malaysia’s prime minister, suggested that a summit of members of the Association of Southeast Asian Nations (ASEAN) plus Japan, South Korea and China could form the basis of an East Asian Community, modelled on ASEAN’s own plans for free trade and further integration. Prime Minister John Howard of Australia and Premier Hu Jintao of China have started negotiations as to what would be required of a free trade pact between the two countries. Australia has already inked a similar deal with Thailand. Asia could find itself as economically integrated as Europe without the politicized wrangling over common currencies and madcap attempts to establish governing bodies that sit above nationally elected governments.
The problem that this country faces it that the longer it waits to get on the bandwagon, the harder and more costly it will be to do so. The U.S. remains the world’s largest and most powerful economy, but has steadfastly swum against the current under the Bush administration. With declining confidence in the U.S. dollar and the distinct possibility that the world is no longer going to subsidize U.S. spending by buying its government debt, the Bush administration is going to have to find new ways to keep the economy running. Four years of profligate spending seems to have been less effective than anyone expected, even on the cynical side of the Democratic party.
The U.S. can no longer expect to hamstring attempts by other nations to form powerful trading blocs as it did in the early 1990’s when it limited the authority of the Asia-Pacific Economic Cooperation and shut down the East Asian Economic Caucus. It may be that for the U.S. to retain its preeminent seat in the world both politically and militarily, it will have to show some leadership economically too.
Alex Turnbull ’05 is an economics concentrator in Quincy House. His column appears on alternate Mondays.