President Trump and Free Trade

President Donald Trump did not wait until January 20, 2017, before starting to introduce parts of his economic program by exerting protectionist pressure and casting doubt over free trade agreements.

Whether questioning the Transatlantic Trade and Investment Partnership (TTIP), the North American Free Trade Agreement (NAFTA) with Mexico and Canada, or challenging the authority of the World Trade Organization, what we have seen in each case is a comprehensive assault on the very essence of free trade. He resumed his attacks, albeit in more moderate terms, in his address to the US Congress on Tuesday, February 28.

Wretched Globalization

It is quite indicative that free trade is being challenged by the United States and an American, a man known for his closeness to the world of business. Until recently, critics of free trade were most likely to come from countries of the South or to represent governments regarded as left-wing or, at least, populist. Over the past 40 years or so, but even earlier (suffice it to mention the “open-door policy” towards Asia), the United States had been the main driving force behind free trade agreements.

Defending “freedom of trade” may well have been a defining feature of the country’s foreign policy. Naturally, this position has been warmly embraced by the European Union, which shares the belief that free trade is the way of the future. However, the EU leaders’ affection for free trade is surprising, since, in fact, it runs counter to the European Project. This affection has become an integral part of a pro-European dogma and the EU has even become a bedrock for all devout followers of the free world religion.

The past 20 years have certainly not been grist to the mill of the supporters of free trade. Its expansion was brought to a halt by the 2008-2010 crisis. The Doha Development Round ended in failure. The number of protectionist measures adopted by individual countries since 2010 has continued to grow. That is why America’s about-turn under Donald Trump, spectacular as it is, is less surprising than it might have initially seemed.

“Doux commerce” instead of military conflict is a myth. It is a well-established fact that warships arrive before commercial vessels. Hegemonic powers have always used their strength for opening up markets and changing the conditions of trade as they saw fit. Globalization, as we have known it for nearly 40 years, was the result of a combination of the advent of financial globalization, which occurred after the breakup of the Bretton Woods system in 1973, and market globalization, reincarnated as free trade.

At every stage, financial and market globalization has contributed to violence and wars. Today we see the result – a general economic and social regression that has affected primarily the “rich” countries but has not spared the rapidly developing countries either.

The Great Turning Point

Nowadays we are witnessing a great turning point. Its roots lie in the sharp decline of incomes among the lower-middle and working class. This decline can, to a large extent, be put down to globalization. The gap between the 1% of the richest and the 90% of the poorest has grown considerably since the 1980s, as a 2015 study shows. The gap is also apparent in the marked contrast between the pace of growth in work productivity and the growth of hourly wages.

Whereas between 1946 and 1973 these curves ran almost in parallel, meaning that growth in productivity benefited both the employees and the capitalists, since 1973 this has no longer been the case. Since then, the hourly wages have grown at a much slower rate than work productivity, making companies and shareholders the main beneficiaries of increased productivity.

The number of protectionist measures adopted by individual countries since 2010 has continued to grow. That is why America’s aboutturn under Donald Trump is less surprising than it might have initially seemed.

This situation was further exacerbated in the 1990s, clearly due to globalization and the opening of borders. This development has had a major psychological impact on the United States, since for the vast majority of the country’s population it meant the “end of the American dream.” Symptomatic of this is the obvious gap between the rate of growth of average income, which has continued to increase, and median income.

Nevertheless, the US is not the only country that has been affected. Great Britain is an example of a country that has also suffered the political impact of these changes. There has been a similar development in France, particularly after 1983, when François Mitterrand began to abandon austerity measures.

Donald Trump’s Twitter Diplomacy

Donald Trump’s recent statements and tweets (regarding Toyota, Ford, and General Motors), bizarre as they may be, have again raised the issue of modern forms of protectionism. In fact, the issue had already been under discussion in the 1930s when, in the wake of the global recession, a change of direction occurred away from traditional free trade positions to a more protectionist vision. One of its proponents was John Maynard Keynes. The number of reasons for challenging free trade keeps growing today, just as it did in 1933.

In the first decade of the new millennium, World Bank experts significantly revised their estimates for “revenues” from the liberalization of international trade. Also, a few years ago, an UNCTAD study showed that the World Trade Organization’s (WTO) Doha Development Round might cost the developing countries up to 60 billion US dollars and yield only 16 billion in profits. Instead of boosting development, the WTO has enhanced global poverty. This shows the full extent of the duplicity of those who claim that free trade reduces poverty.

Nowadays we are witnessing a great turning point. Its roots lie in the sharp decline of incomes among the lower-middle and working class. This decline can, to a large extent, be put down to globalization.

Recently doubts have been cast even over the benefit of direct foreign investments, long regarded as the magic solution. Competition among countries vying for these investments has clearly had a negative impact in the social sphere and on the protection of the environment. This is not something Donald Trump had in mind when he spoke of “America First.” Nevertheless, on a global scale his actions might actually have a very positive impact on the environment, which would be quite a bemusing paradox.

The Economy and Politics

Globalization is synonymous with growth only if it is based on a project that draws on nationalist ideology. Market globalization yields results only for those who do not accept the rules of its game. A classic example is China, a country that has undergone significant development over the past 25 years precisely thanks to the combination of extremely strong nationalist policies and an opening [to the world]. Yet, the Chinese model would be a rather problematic one to follow because of growing social inequality and the destruction of the environment.

Instead of boosting development, the WTO has enhanced global poverty. This shows the full extent of the duplicity of those who claim that free trade reduces poverty.

Far from abandoning the nation, globalization has turned out to provide a new framework for nationalist ideas that result in a domination by the more powerful nations and a destruction of national frameworks, or the growth of reactionary policies and nationalism. The concept of a trend towards integration through business, which we embraced by the end of the “short 20th century,” is also basically a myth, as Paul Bairoch and Richard Kozul-Wright have shown.

In economic terms, free trade is not the ideal solution, as it entails a pronounced risk of crises and growing inequality. Individual countries compete not on the basis of human activities that take place on their territories but by means of social and fiscal policies, which are questionable in their own right.

Most recent studies have shown that the poorest nations have failed to benefit from the liberalization of trade. In political terms, free trade is dangerous because it disrupts democracy and freedom. It creates conditions for the weakening of state structures, thereby bolstering the growth of communitarian thinking and fanaticism, which are not confined by state borders. Jihadism is just one example.

Globalization is synonymous with growth only if it is based on a project that draws on nationalist ideology. Market globalization yields results only for those who do not accept the rules of its game.

Economic internationalism is far from a guarantee of peace; it is, in fact, a path to war. Free trade is indefensible from a moral perspective. Its sole aim is to turn the totality of social life into a mere commodity. It regards the social obscenity of the new “leisure class” as a moral value. The future therefore certainly belongs to protectionism.

Free trade is dangerous because it disrupts democracy and freedom. It creates conditions for the weakening of state structures, thereby bolstering the growth of communitarian thinking and fanaticism.

Leaving to one side Donald Trump’s questionable political style, we have to admit that his project fits in with the pattern of the great turning point that I predicted a few years ago. At this point in time it is too early to know if he will be able to come up with a proper reindustrialization policy for his country, one that would benefit the majority. However, unlike what we are seeing in the European Union, his policies take account of the fact that the era of free trade has come to an end.

Jacques Sapir

Jacques Sapir is a French economist and economic commentator, Head of École des Hautes Études et Sciences Sociales and the Centre d’Étude des Modes d’Industriali-sation in Paris, Visiting Professor at Moscow School of Economics (Moskov-skaya Shkola Ekonomiki). He has recently published Faut-il sortir de l’euro? (2012) and Les scenarii de dissolution de l’euro (2013) – together with Philippe Murer.

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The Way We Will Work

The Future of Work is already here–in Central Europe. Driven by continuing globalization, accelerating digitalization and dreaded automation, the Work is changing. What role will the modern state play in this process? And how gender roles will change? A sweat free paradise is coming. We must adapt to the technological progress and learn for the future growth.
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