188.8.131.52 Trade with the Rest of the World
“Nearly 1 billion people have been taken out of extreme poverty in 20 years”, according to an Economist article, Towards the end of poverty, and “Most of the credit …must go to capitalism and free trade, for they enable economies to grow.” It argued that further progress depends upon “liberalising markets to let poor people get richer. That means freeing trade between countries (Africa is still cruelly punished by tariffs)”.
Wealthy countries would have to make concessions to follow this path: they would have to dismantle their tariff barriers against poorer countries – particularly for agricultural products. The EU Common Agricultural Policy, for example, was designed to benefit its own farmers (whilst it shipped aid to poorer countries at the same time). This policy doubly damages the farmers in poor countries: putting them at a disadvantage in exporting, while destroying their home market by the dumping of food aid. And this argument is not purely humanitarian:
● Wealthier countries would also benefit by dismantling tariff barriers against poorer countries. European and American consumers could have lower cost food and clothing, for example, which would enable them to spend more on other goods and services and allow their economies to grow.
● As poor countries become wealthier, they create demand for products and services that are designed or made in wealthy countries (184.108.40.206).
Farmers in wealthy countries can offer food as ‘home-grown’ and they have access to quicker and cheaper transport, but they would face lower prices and lose some market share if more food were bought from developing countries. Governments in wealthy countries would need to find other ways to supplement farm incomes – such as grants for respecting the environment, for example. Any government should take account of the economic benefits to the whole population when adopting policies that primarily affect one sector.
The above arguments are in favour of free trade as being helpful to the developing world. As noted earlier (220.127.116.11), protectionism is usually a bad policy – and India’s growth only started when it opened its economy to trade. It has been argued, though, that there may be a case for protecting some infant industries in developing countries. Ha-Joon Chang, in an article Protecting the global poor, wrote:
“Almost all rich countries got wealthy by protecting infant industries and limiting foreign investment. But these countries are now denying poor ones the same chance to grow by forcing free-trade rules on them before they are strong enough”.
He backed up his argument by listing numerous examples of infant industry protection (including Britain and America in previous centuries). There could be some cases where this might apply now in developing economies, and it would be hypocritical of wealthy countries not to let this happen when there is a good reason for doing so, but the arguments against protectionism are usually stronger – and, as shown in the next sub-section (18.104.22.168), agriculture rather than industrialisation might be a better choice for some countries.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition03/3583.htm