Upending trade Shamubeel Eaqub’s new column
New trading partners can beat the attack on globalisation, writes new columnist Shamubeel Eaqub.
TPPA is dead in the water. President Trump has scuppered it. Japan wants to change Trump’s mind – it won’t happen. NZ businesses want our government to push on – it’s a waste of time. We must focus our energy on countries that want to trade with us and be much better at unleashing the wider benefits of trade, not just trade for the sake of it.
Trump’s rejection of TPPA is not surprising. He said as much in the election campaign and it is within his presidential powers to do so. That is not so for many of his other promises.
The TPPA was ambitious. Its proponents said the multi-lateral deal covering the ‘new’ economy of services and intellectual property would bring the partner countries even closer together and make them better off.
Critics argued the deal would give too much away to business interests for little economic gain. Estimates for economic gain was 1.4 per cent to the New Zealand economy in 2030, not a massive number, but helpful nonetheless.
Trump’s rejection of TPPA is a powerful indicator of a rejection of unbridled expansion of globalisation.
The expansion of global trade has been remarkable. Global trade rose from 20 per cent of the world economy in 1950, to just over 60 per cent in 2010.
Expansion has stalled since then. But it does not mean global economic growth has stalled. Trade helps, but does not necessarily, in and of itself, cause economic growth.
The case for trade as an engine of growth is seemingly simple. Countries export goods and services they are good at, and import goods and services that they are not good at.
This would seem to explain the significant increase in global prosperity and commensurate reduction in global poverty over that time.
In a 1970 article, economist Irving Kavis suggested that trade was not the engine of growth, rather a ‘‘handmaiden’’ of growth. Expanding trade in and of itself does not ensure economic prosperity. Rather, ‘‘the mainsprings of growth were internal; they must be sought in the land and the people, and in the system of social and economic organisation.’’
Not all countries that experience an increase in trade became more prosperous. The economy has to be strong, smooth and efficient to take advantage.
The reality lies somewhere in the middle. Trade exposes businesses to competition that forces them to innovate. But also, trade allows countries on either side to learn from each other, boosting innovation and productivity. The impacts are cumulative over a long period of time.
We are good at trade policies that expand trade; we need to also do complementary policies that help us learn.
In New Zealand, we have recent history on the impacts of trade barriers. When they were lifted in the 1980s, we were suddenly exposed to the world. Previously, insulated, inefficient and high cost industries were decimated. Consumers were much better off, accessing goods and services that were both better and cheaper.
Our policies and politics can and should focus on securing trade ties. We also need good policies on education, welfare access to capital and low barriers to entry. This will ensure our people and businesses are capable to learning from globalisation and deal with adverse consequences like the demise of industries.
Global trade is no longer rising. This will be accompanied by fewer trade deals with the leadership and coordinating power of large economic interests like America. But others will step into the void, such as China.
New Zealand’s priority should be to upgrade our China FTA and use that as a platform to engage with other trading countries.