Towards a More Inclusive Trading System

A timely, informative and intellectual discussion with Roberto Azevêdo, Director General of the World Trade Organization on the state of global trade and its governance. Some important key points during Roberto’s presentation/discussion:

  • Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries. The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. in the US, estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually.
  • Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade. But the poorest consumers, they could lose up to 63% of their spending power
  • Trade is imperfect: Despite the obvious overall gains, trade can have negative effects in some parts of the economy. And those effects can have a big impact on some people’s lives. But we would be betraying those very same people, and many, many more, if we turned against trade and allowed the negative arguments to go unanswered.
  • Trade protectionism is an ineffective and very expensive way of protecting jobs: In the latter part of the 20th century, the EU protected various industries — including steel, agriculture and textiles. The French economist Patrick Messerlin analyzed this approach. He found that the average cost per job saved was several hundred thousand euros, or about 10 times the corresponding wage in each of those industries. The US applied tariffs on Chinese truck tires in 2009. Around 1,200 jobs were saved, but this came at a cost of $1.1 billion in higher prices for consumers. That works out as a cost of about $900,000 per job. The Petersen Institute estimates that these higher prices also resulted in around 2,500 job losses in the tire retail sector due to slumping sales.
  • Trade protectionist solutions do not reflect the nature of the modern economy and the international nature of production: Most goods aren’t made in one country. Most exports have components which have been imported. So by restricting imports, a country can restrict its own ability to export. Trade protectionism is also a two-way street. It leads to retaliation and the domino-effect.
  • Unemployment is not strictly or mainly a trade issue, trade measures will NOT address this disorder: trade is a relatively minor cause of job losses. The evidence shows that well over 80% of job losses in advanced economies are not due to trade, but to increased productivity through technology and innovation.
  • The real economic revolution that is happening today: Studies suggest that almost 50% of existing jobs in the US are at high risk of automation. An International Labor Organization (ILO) study on Cambodia, Indonesia, Vietnam, Philippines and Thailand found that 56% of jobs are at high risk of automation. And that’s just on average. In some sectors over 80% of jobs are at risk. In Japan, there are 315 robots per 10,000 workers. In China that number is only 36 — but it is rising fast. In the US, the number is 164, which is still relatively low. But it is set to go up!

Questions for thinking:

  • How do we ensure that trade can continue to promote growth and lift people out of poverty?
  • How to RESPOND to the rising anti-trade sentiment in public discourse? Is trade protectionism the right approach?
  • How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
  • How do we help small and medium sized enterprises (SMEs) to leverage technology so that this marketplace doesn’t just become the preserve of the big players?
  • How can the trading system adjust to the shift from a world of few, large, known exporters to a world in which exporters are many, small and unknown? How can we ensure that this transition works for consumers?
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Author: Sheng Lu

Professor @ University of Delaware

17 thoughts on “Towards a More Inclusive Trading System”

  1. 3. How to ensure that the benefits of trade reach further and wider– in other words, how to create a more inclusive global trading system? How to harness the power of e-commerce to support inclusiveness?
    We need to ensure that the benefits of trade reach further and wider. We need to break out of the pattern of low trade growth and we need to respond to the economic transformation created by technological innovation. Specifically, technology has already disrupted trade with E-commerce making up 22 trillion dollars last year. This is why it is important to focus on technological advances. All of this can happen if there are policies put in place that are designed to respond to these challenges. It is the task of domestic policy to ensure that countries are ready to compete and disseminate the benefits in an equitable way. We also have to act to kick-start trade growth, and ensure that the system is open and truly available to all.

  2. This video and the key points are very enlightening, especially in a time like this where a new presidency can redirect where the culture of trade and globalization. To those who believe free trade and global trade is bad due to the domestic unemployment and job loss, I’d say the good of trade definitely outweighs the bad. Knowing that it is is technology and higher productivity that is taking over human labor is something people should be focusing on more than the small negative factors of trade. I don’t think that trade protectionism is a beneficial way to respond to anti-trade sentiment. This video said in itself – it’s more expensive and costs much more to save jobs domestically by cutting off trade. Educating consumers and employees who lose their jobs is important in that the general public understands better why trade makes long-lasting and sustainable developments in our country and other countries. Before this class and learning these things I felt as though it were easier to produce things domestically and looked down upon the globalization of the garment industry. But after being educated by these things, I see how trade is more than fueling economic growth in our country alone – it has a much bigger, long-term impact in other developing countries, while allowing us as US citizens to afford things we couldn’t usually afford if produced domestically.

  3. “How do we ensure that trade can continue to promote growth and lift people out of poverty?”

    This video was very interesting and informative. To answer your question I believe that trade is always going to promote growth and will lift people out of poverty. This can be ensured because of all of the statistics and information that have been proven. According to the video, Trade has proved to be one of the most powerful pro-growth, anti-poverty tools in history: In recent decades it has helped to lift one billion people out of poverty in developing countries! The World Bank found that income grew more than three times faster for developing countries that lowered trade barriers than for those that did not. In the US estimates show that the gains from globalization have raised real household incomes by up to $10,000 annually. How can people be against trade with such a strong statistic of it helping our country as well as economies globally. The people who believe that trade is why there is a loss of jobs are lacking knowledge- 80% of job losses in advanced economies are not due to trade. I think all of this information is so interesting because many people, including our new president, want to get rid of these trade policies however they help economies around the world to succeed and are beneficial.

    1. Very well said! and I have to say that thanks to the rule-based global trading system established by the WTO, nations are much less likely to run into trade wars today than otherwise.

  4. Responding to “How can we harness the power of e-commerce to support inclusiveness?”–designers like Lauren Conrad have created online stores like The Little Market (which sells handmade artisan goods) to support women in developing countries to rise above poverty. Indeed, their mission states “we source all of the artisans’ products ethically and practice fair trade principles. We acknowledge the interdependency of people around the world and our responsibility to help others.” It is forward thinking companies like these that can help provide less developed regions enter the global marketplace in a socially responsible way. Hopefully protectionism in the U.S. will not lead to increased tariffs on these handmade goods.
    https://www.thelittlemarket.com/pages/mission-1

  5. 1. How do we ensure that trade can continue to promote growth and lift people out of poverty? From what I have learned about trade so far I believe that it can do wonders to promote growth and lift people out of poverty. The World Bank showed that income grew 3x as much as fast for developing countries that lowered trade barriers. I think getting rid of trade would be detrimental for economies around the globe because it would restrict imports that help establish jobs and in turn would put a lot of people out of work. The video shows that: Trade means more choice, lower prices and real dollar in the pocket for consumers: A joint study by UCLA and Columbia found that people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade.I think it is extremely important that people are educated on what exactly the affects of restricting trade would be.

  6. How do we ensure that trade can continue to promote growth and lift people out of poverty?

    I enjoyed the above video featuring Roberto Azevêdo’s speech about the state of global trade. In response to the first question, I maintain that the positive aspects of trade far outweigh the negative aspects. As stated above, if free trade were to cease, then people with high incomes could lose up to 28% of their purchasing power if borders were closed to trade, but the poorest consumers could lose up to 63% of their spending power. Moreover, trade causes a relatively small amount of job loss(es) globally, and is minute when weighed against the job growth it spurs. To that end, it is necessary for governments to recognize that trade protectionism is ineffective, and that trade is imperfect. With this knowledge, they may choose to vote in favor of international trade policies, like the TPP, in order to protect and further the growth of trade. Ensuring that free trade continues will simultaneously ensure that some of the poorest individuals in developing nations have jobs and can sustain their livelihood(s).

  7. I think for free trade to continue to promote growth, industries must work hand in hand. Obviously one country cannot depend on just one industry for employment. As the U.S. has reached an advanced level of textile production and offers fewer jobs as the result of automation, other industries such as the automotive industry have brought more labor-intensive jobs to the U.S. This would not be possible without international trade. I think protectionism is not the answer, but when people are personally affected by industry change and globalization, it may be very difficult to convince them that these changes are creating more good than bad. People need to look at the bigger picture, but they probably cannot do that and be satisfied if they are struggling to find a new job, or a job in a new industry.

  8. I feel that there is no way to ensure that growth and lift people out of poverty but I think if international trade continues as it is and every country continues to support one another and more trade agreements make it easier to trade freely the industry will continue to grow as rapidly as it is now and more and more people will be able to be employed by expanding companies lifting people out of poverty into the job market. But i think the key thing that needs to continue to happen is the free trade agreements and lots of use of these free trade agreements.

  9. Anti-trade sentiments should be met with open discussion. Both sides of the argument need to understand the origins of concerns. It may be safe to say that a portion of the country doesn’t understand why we rely on free trade to import from global nations; a lot of the time our political leaders only highlight the worst in actions. In my view, trade protectionism is not the right approach. Our country imports way more than it exports, and the costs of this would be affected if we began attempting to save jobs. Trade needs to be explained in ways that promote its success and low retail costs.

    Maybe to support our small and medium sized enterprises there should be domestic agreements for promotion that eventually open the doors for SMEs to witness global trading. The public needs to be educated on SME economic standards and weigh the benefits of having it become more involved in free trade. SMEs rely heavily on actions by larger-leading retailers, but SMEs should have the opportunities to provide products themselves. Ie: Developing FTAs where SMEs could be represented at least 25% of the time may allow easier access to market. How feasible is this? I’m sure that’ll be quite the debate.

  10. In response to “how do we ensure that trade can continue to promote growth and lift people out of poverty,” there is no way to fully ensure economic growth to lift people out of poverty however with new levels of production in developed nations, growth is much more rapid. Trade does have negative effects of certain parts of the economy and if not fixed or corrected properly can have detrimental outcomes. To educate people on free trade policy and trade protectionism would have the most impact on ensuring growth instead of supply shortages.

  11. #1: Roberto Azevedo noted that trade has been a large contributor to developing nations, helping lift one billion people out of poverty and raise household incomes by up to $10,000 annually. That in mind, I was thinking back to our previous 455 case study with President Regan. When we discussed the MFA agreement, we noted that FTA affected different developing countries in much different ways. It is common for one to consider all “developing” countries as one lump sum. However, that is not the case; some of these countries are MUCH more advanced and capitalistic than others. Acevedo asserts that income grew more than three times faster for developing countries with lower trade barriers. Clearly, lower trade quotas and other barriers will help all countries to an extent, but particularly the most developed of the bunch. The LDCs, however, will suffer from greater competition and likely not survive without some form of policy protection, like a guaranteed quota from US and EU.
    In no way am I saying that his assertion is wrong, I am just proposing that there is more to consider that lowering all trade barriers when it comes to aiding and advancing developing nations.

  12. #1. How do we ensure that trade can continue to promote growth and lift people out of poverty?

    Roberto Azevedo says, “It was American leadership that opened the global economy to trade after the second world war as means for building more peaceful and prosperous world.” That is exactly what trade has done. Trade, whether it’s an import or export market, creates jobs. By creating these jobs, GDP increases and unemployment decreases, therefore successfully contributing to the growth in the economy. Case Study 2 even mentioned when the U.S. created the MFA, the initial goal was help LDC’s grow by 6% annually. Though bilateral agreements made it tough for LDC’s to export their goods, they were still able to participate in global trade and grow their economy while also increasing employment by the end of 1970s. Case Study 1 also explained the positive effects of producing within Bangladesh. 5,000 garment factories that worked for global brands (employing 3.2 million people) made Bangladesh a top exporter as the country was producing 90% of manufactured products for their export market. Even though wages were significantly low in Bangladesh, it was the first step in eliminating poverty. These two cases were perfect examples that demonstrated how trade in the past has successfully lifted countries out of poverty, therefore suggesting it will also be beneficial in future trade opportunities that arise for LDC’s or any other nation experiencing an economic downfall.

  13. How do we ensure that trade can continue to promote growth and lift people out of poverty?

    global trade helps promote growth and lift people out of poverty because it brings income and jobs into the countries that need them the most. What we can do to continue to promote these qualities is to continue labor and production within these more poverty stricken countries so that their economy will expand and increase.

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