To trade or not to trade?

April 6, 2017

 

Would anyone deny globalization’s tremendous contribution to altering the welfare of the world? Today, humans are on the whole wealthier, healthier, and therefore, happier because of globalization and its byproducts. Essentially, it is the world-wide integration of trade, along with the economies, finances, government, and people of the world’s nations; as complex as it sounds, international institutions, such as the World Trade Organization, annually tracks and monitors globalization, as a measure of the world’s GDP growth. Though global economic growth has been below historical averages since the end of the Great Recession, world governments have always remained hopeful, with optimistic annual positions; that was until  the WTO observed, as of late 2016, the slowest rate of production growth and trade since 2009’s financial crisis.  Economists have attributed the stagnation to several sources, citing poor GDP growth in major economies, the rise of digital trade, and the growing protectionism among countries. Of these possible causes, the rise of protectionism and anti-globalization sentiment causes greater concern to prominent economic institutions, such as the International Monetary Fund and WTO. They warn of protectionists’ threat to the present liberal world order, which has afforded hundreds of millions a more pleasant livelihood. Will governments heed their warning? Only time can tell.

 

If a nation aims to better its economy, the most effective means rely on trade with other countries. Trade allows countries to specialize in what they produce best, and consequently, allows them to buy cheaply the goods that other countries produce best. The ideal way of facilitating international cooperation is to establish agreements to lower trade barriers, like the Trans-Pacific Partnership between the United States and 11 countries in the Pacific Rim, or the Regional Comprehensive Economic Partnership, a proposed agreement including China, India, and other Southeast Asian countries (still amidst negotiations). Obama’s trade policy hallmark, the TPP, intended to safeguard relations with the Pacific Rim by reducing tariffs, along with providing support against mounting Chinese influence in the region, besides additionally anticipating higher exports and increased incomes in the US. However, as of Jan. 23, President Trump abandoned the TPP, effectively killing the trade deal. His crusade against  America’s trade agreements extends to even the North American Free Trade Agreement, in which he deemed a disaster that stole jobs away from Americans. Renegotiating NAFTA had been one of Trump’s ardent aims during his campaign, although no official plans have been arranged.

 

That trade is closely tied with a country’s economic growth is unquestionable. Entrepreneurs and consumers from different countries with access to global markets strengthen their respective economies. Thus, both become bogged down by protectionist attitudes, a sentiment with which Trump’s administration presently upholds. A 5% tariff on all imports coming into the US is being considered by the administration, whereas an even higher tariff on Mexican and Chinese imports is also on the table. In the past, Trump has voiced his indifference to a harsh trade barriers, touting “who the hell cares if there’s a trade war?” during victory rallies since the election. Be that as it may, other countries are not going to overlook the great benefits to trade agreements and will undoubtedly carry on dealing and negotiating, with or without the United States. Ultimately, protectionism and anti-globalization policies only stand to isolate the US.

 

So, what would the consequences of a protectionist agenda look like? Well, a trade war wouldn’t be too off the mark. What’s to stop other countries from imposing similar tariffs and barriers on America? The proposed 5% tariff may consequently cause a lag in our GDP growth, as much as a .5% decrease in annual GDP growth, assuming we impose higher tariffs on China and Mexico. This reduction will negatively impact average Americans in several ways, including higher consumer prices. Because it is not uncommon for goods to be made with foreign parts, increased tariffs results in more expensive imports, which can in turn motivate businesses to raise prices. Even if businesses evaded tariffs by producing more in America, higher prices would still arise because of the expensive labor costs in this country. In the long run, anti-globalization policies in the US may can only hurt Americans, as well as likely provoking other countries to impose similarly protectionist policies on us, setting the foundations for another recession.

 

Whether to cooperate with other countries shouldn’t be up for debate. We should embrace further integration with the world, making the effort to include all nations to the benefits of free trade. This line of economic thinking as afforded millions prosperity since the later half of the 20th century, so what justification do we have to abandon it now?

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