Trade in physical goods, and increasingly services, exists because people want it to
Trade is more contentious now than it has been for decades. From the US decision to pull out of the Trans-Pacific Partnership, to negotiations over Britain’s future relationship with the EU, trade is at the heart of public discourse.
Some are being tempted by the argument that trade is the primary cause of inequality. This is fundamentally wrong. It threatens global prosperity by encouraging protectionism at a time when the world urgently needs more trade liberalisation. Advocates of free and fair trade need to regain the initiative, which means doing three things.
Trade is not a panacea for all the world’s problems, but its power to create prosperity is enormous
The first is to explain that trade exists because people want it to. Trade was how entrepreneurial cutlers, seeing the comparative advantages, made my home city of Sheffield into the steel capital of the world, and how those same cutlers were able to buy imported goods such as tea, cotton and rubber. Digital trade is how we can now buy Hollywood blockbusters from video-on-demand platforms hosted on servers a continent away. Trade isn’t just about physical goods, it’s increasingly about services too, which are being made more tradeable by technology.
Trade is essential for prosperity, stability and security. According to the Organisation for Economic Co-operation and Development, manufacturing workers in countries that are open to trade earn between three and nine times more than their peers in closed economies. Half a century ago southeast Asia was tearing itself apart, but this year the Association of Southeast Asian Nations (ASEAN) celebrates its fiftieth anniversary. Through co-operation and commerce the member states have collectively built the world’s seventh-biggest economy.
The second thing we need to do is to acknowledge that the substantial benefits of trade haven’t been shared evenly, so we must rebuild trust by encouraging investment and protecting the vulnerable. Rather than leaving responsibility solely to governments, businesses must play a greater role in a world where technology and automation are already revolutionising how we live and work. Companies need to collaborate with governments to develop education and labour markets that give workers the skills and protections they need to succeed.
The third thing is to ensure legal and regulatory frameworks optimise access to trade. This means making procedures simpler and more consistent so it’s easier for companies to conduct cross-border business. It also means ensuring that capital regulation encourages trade finance by recognising its low risk profile, enabling financial institutions to fill more of the estimated USD1.5 trillion gap in unmet demand for trade finance.
Trade is not a panacea for all the world’s problems, but its power to create prosperity is enormous. But only by repairing trust in trade, and by creating a better and fairer system, can we take advantage of it. We have an opportunity to create a new era – where gains are reinvested more evenly, and where access is increased on an unprecedented scale. The result will be a better future for us all.
A version of this article appeared in the i, a UK newspaper on 7 September 2017.