Trading Places


Margaret Thatcher departed 10 Downing Street less than a week before the General Agreement on Tariffs and Trade talks convened. For advocates of open trade, her timing couldn't have been worse. Among the European leaders, only Thatcher would stand up to the farm lobby and other protectionists on the Continent. And though John Major looks ready to carry Thatcherism into the next century, the immediate future of liberal trade policy appears muddled.

Even if GATT survives the Uruguay Round with any credible authority, a growing number of nations are prepared to abandon the "global marketplace" for a new collection of regional trading blocs. And before the GATT talks opened, an unusual role reversal became apparent: As the developing world begins to embrace free trade, the industrial democracies call for protectionism.

For decades, the economic basket cases of Latin America and Eastern Europe built walls of protection to prop up infant industries or keep out evil bourgeois influences—but only poverty thrived in that atmosphere. When these countries began to liberalize their political systems, they opened up their economies as well.

While these struggling democracies seek outside capital, they also have products to offer the rest of the world. Poland and the Ukraine possess productive farmland; Mexico and Brazil have built modern automotive plants. Access to consumers in rich countries could provide economic growth to stabilize their governments.

But the developed world has also changed its tune. The richest countries have become fat, lazy, and beholden to noisy special interests. The European farm lobby uses environmental appeals to justify huge subsidies and tariffs. Japan will be tempted to build new trade barriers as it loses manufacturing jobs to Taiwan and South Korea. And textile manufacturers in the United States promise to keep up the pressure for more import restrictions.

What happened to the defenders of free trade? Once serious economists scoffed at protectionism. Now Lester Thurow and Paul Krugman, among others, argue that the global economy is too complicated to be governed by archaic notions of free trade. They claim GATT, which attempts to enforce one set of rules for all members, is obsolete. Only free-trade zones and bilateral trade agreements, they say, allow nations the flexibility to reward and retaliate.

Some early reports on free-trade zones look favorable. Mexico might enter the U.S.-Canada agreement; other Latin American countries have expectantly joined the queue. Both Spain and Portugal have clearly benefited from trading with a more-integrated Europe.

Unfortunately, most trading-bloc proposals don't reduce trade barriers, but instead set import targets for specific goods and leave other protectionist measures intact. Free-trade zones could develop into miniature protection rackets (the final version of the E.C. is an example) that pound one another with high tariffs and quotas. This policy environment encourages manufacturers to hire effective lobbyists, not make better products.

The body currently governing world trade—GATT—certainly is inflexible; but that's why it's effective. GATT rewards the nations that lower their trade barriers. A country determined to use tariffs or quotas will punish only itself.

But the arguments of Thurow, Krugman, and the managed traders are winning the debate. As GATT loses its authority, the world economy may come to resemble the chilling vision of columnist Pat Buchanan. In a Thanksgiving Day Los Angeles Times op-ed piece, Buchanan celebrates protectionism based on tribalism. He makes no attempt to argue its economic merits. Instead, he says that in a stagnant economy, "the argument for efficiency will not carry the house.…From Canada to Soweto, nationalism is ascendant; men are putting tribe, culture, country, first." Advocates of liberal trade recoil in horror from these developments; Buchanan seems to applaud them.

Unfortunately, tribal urges may evolve into policy. Once leaders of the wealthy nations succumb to protectionist pressures, the poorer countries won't find markets for their products. The global economy will splinter, leading to economic collapse in these fragile democracies—and, perhaps, to calls for the generals to return.

Buchanan's arguments confuse regional diversity with racial warfare, free trade with an interventionist foreign policy. He thus ignores the basic right of all persons to trade with anyone they choose. As weak as Buchanan's arguments are, they show that stating the practical case for free trade isn't enough: We have to make the moral argument as well.