One of the most devastating effects of the Great Recession still influencing the world today is the soured public opinion of free trade. Since 2012, growth rates of trade have stubbornly remained less than half of its pre-recession rate, partially a result of swellings of support for protectionism and skepticism over trade. When we rebel against free trade, we rebel against the mechanism that has lifted billions out of poverty over the last 100 years. Ask any economist and you will hear that free trade unequivocally makes any society better off. International trade has driven the rise of hundred of millions of Chinese out of abject poverty, and is doing the same to poverty. How will Sub-Saharan Africa or the Philippines or Venezuela rise out economic destitution unless we buy their things?
In the leadup to the Great Depression, the US and other world powers began to enact increasingly protectionist policies, culminating in the infamous Smoot-Hawley tariff in the US, considered by some experts to be one of the largest triggers of the Great Depression. However, despite knowing history, we seemed doomed to repeat it, with both presidential candidates championing protectionists policies hostile to free trade, including repealing NAFTA and penalizing companies that move production outside the country.
Free trade has a public relations problem. While it will always create more benefit in magnitude than it will harm, usually those benefits are spread across every consumer in the economy, while the losses are concentrated in the sector of the economy that loses to foreign competition. This leads to very loud “losers”, while the “winners” have much less incentive to be loud about the benefit they are receiving. Thus, the public often hears vitriolic complaints about predatory foreign competition while never hearing the good news. Education becomes the solution – the dreaded Econ 101, courageous politicians unafraid to lead, and more vocal “winners” from free trade.
While free trade will always make us better off collectively, we must be sensitive to those who lose as a result. The cold classical economic theories assuring the losers to free trade that they will be better off in the long run is not sufficient. Thus, the implementation to greater levels of free trade must be enacted wisely and incrementally to allow these sectors to adjust and recalibrate their employment. As we employ measures to facilitate free trade, we will see greater economic growth in the US, help to lift hundreds of millions of more out of poverty, and create a more prosperous globe for us all to enjoy.
Read Lagarde, Kim, and Azevedo’s opinion article on this topic here: http://www.wsj.com/articles/how-to-make-trade-work-for-everyone-1475621791
Ms. Lagarde is managing director of the IMF, Mr. Kim is president of the World Bank Group, and Mr. Azevêdo is director-general of the World Trade Organization.