Asia Global Institute

Making the Case for Trade

Friday, May 6, 2016

Making the Case for Trade

Patrick Low, Fellow of Asia Global Institute, calls on governments to make the case for trade-driven growth.

The Transatlantic Trade and Investment Partnership (TTIP) is in the news again, as the thirteenth round of negotiations takes place in New York. Such periodic encounters have been taking place for eight years now.

The TTIP would bind the United States and the European Union in a far-reaching trade and investment agreement, with the deal counting as one of those so-called "mega-regionals" - very large preferential arrangements involving practically all of the world's mightiest economies.

The TTIP would account for some 40 per cent of global GDP and more than half of all foreign direct investment.

Neither of the other two leading mega-regionals - the Trans-Pacific Partnership (TTP) and the Regional Comprehensive Partnership Agreement (RCEP) - are on the books yet either. RCEP has some way to go and the TPP is awaiting ratification. It is questionable whether the TPP will ever get done in the US Congress. One can similarly speculate about TTIP's chances.

Some 35,000 anti-TTIP protesters took to the streets of Hanover, Germany, over the weekend to mark US President Barack Obama's visit to the city. Massive protests have also taken place in other European countries and the US in recent times. Significant sticking points remain to be resolved.

Trade has rarely been a vote-catcher. Many governments over the years have preferred to strike deals behind closed doors rather than persuade the public of the advantages of trade. Secrecy has fed increasingly popular anti-trade sentiment.

Why have governments systematically shied away from a forthright defence of trade? Why have they not done more to sell the virtues of trade-driven growth and productivity-boosting specialisation and job creation in activities where economies are relatively more efficient?

Making a convincing case for trade does not lend itself as readily to populist soundbites as complaints about the downside. Moreover, the aggregate benefits from trade are widely spread across the economy, whereas the costs are much more concentrated. That raises the stakes for the adversely affected.

Trade opening creates losers as well as winners. Adjustment to new opportunities shifts resources and changes relative prices. Few governments take sufficient trouble to manage the often painful transitions confronted by those displaced by trade opening.

Inadequate adjustment polices have made governments look uncaring. They have created space for anti-trade interests to emphasise the downside. They have helped the naysayers to nurture the conviction that trade deals are designed primarily to make life sweet for large corporations rather than to grow national welfare.

The public fracas over the TTIP speaks to another major stumbling block faced by trade agreements. As traditional barriers to trade at the border such as tariffs have fallen away, the cutting edge of competition turns increasingly on regulation. Much of the focus of the TTIP negotiations is on setting standards and related procedures that minimise obstacles to trade.

That exercise speaks to social preferences that are not necessarily shared among different countries. Some of the Hanover protests were about food safety, the risks associated with genetically modified organisms and protection of the environment. Europeans believe, rightly or wrongly, that Americans have more relaxed attitudes regarding these matters. Perhaps not all standards adopted by different communities should be standardised or mutually recognised.

Opposition becomes stronger when these concerns are added to other objections, such as foreign access to government procurement contracts or respect for price premiums inherent in the exclusivity of geographical indications for food and beverages.

Deep suspicions over corporate stitch-ups, the rights of corporations to sue governments - so called investor-state dispute settlement - and fears over job losses add grist to the discontentment mill.

But public opinion can be fickle. According to opinion surveys undertaken by the Bertelsmann Foundation, two years ago some 53 per cent of Americans supported the TTIP. Today the number is only 18 per cent. In Germany a figure of 55 per cent two years ago has tumbled in comparable fashion.

While public attitudes to trade in general have held up better, the trend is unmistakably southbound. Governments have their work cut out if they care about harvesting the gains from trade.

This article first appeared in the South China Morning Post on Why have governments shied away from defending trade?

The views expressed in this article are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.


Patrick Low

Senior Fellow, Asia Global Institute

Patrick Low


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