In the ongoing discourse surrounding global trade policy, it’s essential to understand the dynamics that have shaped the international economic landscape, particularly how the United States has navigated trade liberalization. Jomo Kwame Sundaram provides insightful perspectives on these themes, examining how the U.S. has pushed for selective trade liberalization while maintaining its advantages over other economies. This article explores the complexities of trade policies since World War II, particularly in relation to neoliberal ideals and the implications for developing nations.
By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Jomo’s website
President Trump has often attributed the deindustrialization of the United States to trade liberalization championed by globalists. However, it is worth noting that his administration weaponized various economic policies and instruments under the banner of ‘Make America Great Again’ (MAGA).
In his initial term, Trump sought to bring back industries that had relocated overseas. In his second term, he intensified his tactics by threatening measures to secure investments, access to markets, and other economic benefits for large American corporations, often at the expense of allies and particularly nations in the Global South.
While he dismissed the notion that trade liberalization fosters growth, employment, and rising incomes for all, his ‘America First’ ideology has slowed economic progress globally, including within the U.S.
Post-War Trade Policy
Since the conclusion of World War II, the United States has played a dominant role in shaping international relations and multilateral economic governance. After rejecting the 1948 Havana Charter aimed at establishing the International Trade Organization (ITO), the U.S. favored selective trade liberalization aligned with the neoliberal Washington Consensus that multilateral economic institutions began promoting in the 1980s.
During the neoliberal era, economic growth has been slower and more volatile compared to the post-war Keynesian ‘Golden Age’ experienced in the first quarter-century following WWII.
The West’s push for the establishment of the World Trade Organization (WTO) was a pivotal moment aimed at solidifying the international economic system based on neoliberal principles. The 1994 Marrakech Agreement, which established the WTO, left minimal space for developmental policy initiatives.
For many in the West, the initial Trump presidency in 2017 marked the end of neoliberal trade liberalization. However, it is important to recognize that this reversal had actually started earlier in the 21st century, particularly in the aftermath of the 2008-09 global financial crisis.
Despite this, Trump should be credited for unapologetically utilizing international trade and investment frameworks as tools against both adversaries and allies alike.
Hegemony
Trade advocate Jagdish Bhagwati argued that anything less than multilateral trade agreements, including plurilateral and bilateral agreements, is inherently sub-optimal and unjust.
Compromises endorsed by international financial institutions and the OECD have primarily reinforced U.S. and Western hegemony.
The decolonization of Asia and Africa post-war has led to rising dissatisfaction within multilateral institutions, prompting a selective weakening of these entities by the West after the Cold War.
As the U.S. has struggled to ensure that the WTO’s dispute settlement system consistently safeguards its interests, it has effectively stalled this process by blocking key appointments since the Obama era.
However, collective assertiveness from developing countries within multilateral settings has begun to mitigate some negative impacts of economic integration under Western auspices.
Partial and uneven trade liberalization has hindered industrial growth in the Global South. Recent deindustrialization has resulted in a diminished role for manufacturing within national outputs across various developing nations.
Furthermore, Africa has seen little advancement in new manufacturing capacity beyond minimal import-substituting and resource-processing activities, often constrained by significant transportation costs.
Divide and Rule
Economic concessions, such as trade preferences extended to developing countries, have often been exploited to fracture the Global South, including both the ‘least developed countries’ and ‘small island developing states,’ ultimately weakening their collective bargaining power.
Moreover, trade liberalization has led to a decline in tariff revenue that holds considerable importance for the poorest developing nations, where tariffs have constituted up to half of total tax income.
Attempts to substitute tariff revenue with additional consumption or income taxes have frequently fallen short, further compromising their fragile fiscal health and leading to increased reliance on borrowing.
Efforts to boost agricultural production in land-rich African nations were meant to enhance food security and competitiveness in exports, yet there is scant evidence to suggest this has been achieved.
Developing nations have persistently sought the Global North’s commitment to eliminating agricultural subsidies, tariffs, and non-tariff barriers that impede their agricultural production and competitiveness. However, wealthier nations have long maintained that developing countries must first make reciprocal concessions, such as eliminating manufacturing tariffs.
Structural adjustment programs have also detrimentally affected agricultural infrastructure and smallholder productivity in several developing nations, while reductions in farm subsidies in Europe have escalated food import costs in the Global South.
Gains From Trade?
Many of the touted benefits from trade liberalization are often theoretical or based on isolated instances of comparative advantage, lacking cumulative potential.
Assertions of successful trade liberalization presuppose that countries possess internationally competitive production and export capabilities that can create strong positive supply responses. Such preconditions are rare in most developing nations, particularly the poorest, and typically require protection from external market forces to develop.
Most studies examining realistic outcomes from the WTO’s Doha Round negotiations since 2001, including those conducted by the World Bank, have anticipated net losses for many developing economies, with the exception of a few in Asia.
Additionally, robust evidence linking trade liberalization to significant reductions in poverty and hunger remains elusive. Countries in the Global South, especially the poorest and those in sub-Saharan Africa, are likely to find themselves in a worse position.
This raises a critical question: Why must developing countries receive ‘aid for trade’ if trade liberalization is truly in their best interest?
Alarmingly, trade liberalization has severely restricted policy options for countries aspiring to achieve sustainable development, significantly impacting their capabilities in trade, industrial, investment, and technology policies.
