THe Blog

April 20, 2016

Dani Rodrik Offers a Progressive Logic of Trade

In this Project Syndicate article, Dani Rodrik argues that "Progressives should not buy into a false and counter-productive narrative that sets the interests of the global poor against the interests of rich countries’ lower and middle classes." Excerpts below:

 

"...The US presidential candidates Bernie Sanders and Donald Trump have both made opposition to trade agreements a key plank of their campaigns. And, judging from the tone of the other candidates, standing up for globalization constitutes electoral suicide in the current political climate...

 

Globalization has not lifted all boats...

 

What gives trade particular political salience is that it often raises fairness concerns in ways that the other major contributor to inequality – technology – does not. When I lose my job because my competitor innovates and introduces a better product, I have little cause to complain. When he does so by outsourcing to firms abroad that do things that would be illegal here – for example, prevent their workers from organizing and bargaining collectively – I may have a real gripe...

 

...trade rules that are more sensitive to social and equity concerns in the advanced countries are not inherently in conflict with economic growth in poor countries. Globalization’s cheerleaders do considerable damage to their cause by framing the issue as a stark choice between existing trade arrangements and the persistence of global poverty. And progressives needlessly force themselves into an undesirable tradeoff.

 

First, the standard narrative about how trade has benefited developing economies omits a crucial feature of their experience. Countries that managed to leverage globalization, such as China and Vietnam, employed a mixed strategy of export promotion and a variety of policies that violate current trade rules. Subsidies, domestic-content requirements, investment regulations, and, yes, often import barriers were critical to the creation of new, higher-value industries. Countries that rely on free trade alone (Mexico comes immediately to mind) have languished.

 

That is why trade agreements that tighten the rules are in fact mixed blessings for developing countries...

 

Second, there is nothing in the historical record to suggest that poor countries require very low or zero barriers in the advanced economies in order to benefit greatly from globalization... 

 

The time has come to embrace a different logic, that of “exchange of policy space.” Poor and rich countries alike need to carve out greater space for pursuing their respective objectives. The former need to restructure their economies and promote new industries, and the latter must address domestic concerns over inequality and distributive justice...

 

The best way to bring about such institutional re-engineering would be to rewrite multilateral rules. For example, the “safeguards” clause of the WTO could be broadened to allow the imposition of trade restrictions (subject to procedural disciplines) in instances where imports demonstrably conflict with domestic social norms..."

x Close Window

Please verify your email address to access this content