Free Trade and Politics

Proponents of globalization argue that trade is necessary to maintain the peace in an interconnected world. Unfortunately, trade alone is not always enough to maintain the peace; witness the speed with which the era of global trade (which began in the late 1880s) unraveled. Starting with the Balkan wars of 1912, the rapidly integrating world economy first contracted and then received the coup de grace in Sarajevo, when the shot that killed an Austrian Archduke unleashed the guns of August and the huge disaster of the Great War.

With all their power to create wealth, free trade and open markets are highly susceptible to contingent events. It remains to be seen whether the present global obsession with security will disrupt the second global era, with its promise of seamless cross-border connectivity.

The intertwining of politics with free trade, up to and including the denial of trade benefits for political ends, should come as no surprise. For years, trade sanctions have been used as a form of coercion short of war, with mixed results at best. A famous case in point is the League of Nations' retaliatory oil boycott against Italy in the 1930s for the invasion of Ethiopia, an economic sanction that was widely evaded by the signatories and, ultimately, ineffectual.

The United States' denial of petroleum to the Empire of Japan backfired when it became a justification for Japan to widen the Pacific War. On the other hand is the U.S. economic embargo imposed against Libya for supporting terrorism (most specifically for its failure to accept responsibility for its involvement in blowing up Pan Am Flight 103 over Lockerbie, Scotland, in 1988). The U.S. embargo appears to have worked, since as of late 2002 Libya had offered a $2.7 billion settlement to the families of the people killed on the Pan Am flight.

Certain schemes of market invention have worked for a while, such as the Brazilian coffee valorization plan of 1907 (a state policy of minimum price supports for coffee based upon varying coffee bean qualities, or valorizations). In the 1970s, the Organization of Petroleum Exporting Countries (OPEC) succeeded in wresting control of oil pricing away from private companies, but like the Brazilian scheme, this policy of market intervention backfired because it stimulated alternative sources of supply.

It remains to be seen whether green boycotts such as the protest over Mexican tuna fishers' netting practices (which capture dolphins as well), or the campaign to compel higher labor and environmental standards in Nike plants in Southeast Asia will become a standard weapon in the arsenal of environmental activists. Boycotts carefully targeted to achieve specific ends can be highly effective.

For their part, Third World governments tend to see green boycotts as a new form of trade protectionism. Perhaps more effective in the long run will be the pressure of consumers demanding products with green labels, which certify environmentally sound production practices and high labor standards. Recently, even that most hidebound of banana producers, Chiquita brands (the successor to notorious United Fruit) has responded to market forces by implementing a green label certification program that assures consumers that Chiquita makes only limited use of pesticides, trains its workers in proper use of those chemicals it does use, and has instituted a plastics recycling program.

The fact that market interventions by groups seeking specific social ends have proliferated in recent years is the result of deep changes in civil society. No longer do trade professionals set the rules behind the scenes in concert with a limited range of traditional actors.

The burgeoning of nongovernmental organizations and other "nonelected groups" (as their critics call them) signifies a much broader constituency for trade issues. In fact, the clash of cultures between experts used to negotiating complex trade deals among themselves and their usual constituencies, and these newly emergent and often rambunctious groups seeking access and action on complex issues is a feature of our times.

Arguably, free traders hold the intellectual high ground, but the fact that more and more policy makers feel the need to accommodate this wider range of concerns and actors in trade discussions, under pressure from activist groups and their own constituencies, is something really new.

Regionalism and the timing of market openings are also issues of concern to free traders. For example, opinion is divided over the wisdom of regional trade agreements such as the North American Free Trade Agreement, or NAFTA (a first-order trade pact), Mercosur (a common-market agreement among the nations in the southern part of South America), and the projected Free Trade Agreement of the Americas, which is slated to come into effect by 2005.

Those in favor of regional trade pacts hail the potential of "open regionalism" to increase the flow of goods and services. Those opposed point to the risk of "trade diversion" from the global trading system to a few privileged partners. Due to increased trade among regional groupings, the open regionalists, to date, appear to have the better argument.

Another issue is the timing of market opening. However desirable lowering tariffs and other forms of protectionism is in theory, some nations, such as Brazil, have been slow to open for fear of losing their industrial base. Mexico has chosen to risk the "creative destruction" of old industries for the benefits of a more rapid transition to free trade.

And for their part, the celebrated Asian Tigers coupled their export-led growth policies with interventionist policies at home to promote and protect certain industries. What, then, of the emerging environmental issues which many free traders dislike but with which they now must deal?