Trade has become an essential feature in today’s globalized world, with nations engaging in numerous trade agreements to boost their economies. In recent years, there has been a growing debate about the role that trade plays in promoting economic growth and development globally. While some policymakers argue that protectionist policies can promote local industries, it has been increasingly clear that they are detrimental to global trade and economic prosperity. The current global challenges presented by Covid-19 and geopolitical tensions have also added further pressure on the need to prioritize more trade on the global agenda. In this article, we outline the importance of prioritizing more trade and how it could be instrumental in boosting economies while promoting global peace and prosperity.
Free trade, once celebrated as one of the most significant developments in the modern world, has fallen out of favor in rich countries due to job loss concerns, and policymakers appear to have abandoned the concept. In the past century, trade as a percentage of the global economy has been steadily increasing, but it peaked at the height of the Global Financial Crisis and is now on the decline. This decline is also observable in Jordan, where the share of trade within the economy has dropped considerably over the past 15 years.
Trade is known to boost incomes, as it allows countries to specialize and boost efficiency in areas where they excel the most. One study suggests that trade makes everyone 27% richer, meaning that countries’ incomes are, on average, more than a quarter higher than they would have been without trade. Trade does not merely increase average incomes; it also helps impoverished people lift themselves out of abject poverty. One of the most commonly cited recent studies shows that the poorest 20% of the world’s population experience growth rates that are as fast as, if not faster than, the average when a country engages in a free trade system.
China and India, the two most populous countries on Earth, provide clear evidence of this. China’s trade has skyrocketed, resulting in a seven-fold rise in incomes and a reduction in extreme poverty from 28% to nearly zero. India has experienced a similar, albeit modest, trajectory. When tariffs were lowered from a stifling 56% in 1990 to a paltry 6% in 2020, average incomes rose by almost four-fold, and extreme poverty decreased from 22% to 1.8%. Other rising nations such as South Korea, Chile, and Vietnam have also shown similar trajectories. It is evident that prosperity from trade is distributed amongst people regardless of social class.
Achieving free trade has always been one of the primary aims of world leaders who have committed themselves to the Sustainable Development Goals for 2030. However, the world has been failing to meet this objective and many other promises made. The list of promises includes 169 targets, many of which are far from being regarded as core objectives, such as increasing trade, eradicating infant mortality, providing improved education and helping end climate change and wars. The Copenhagen Consensus, a think tank led by Bjorn Lomborg, has been working with Nobel laureates and over a hundred leading economists to identify which targets should take priority for years.
According to the new, peer-reviewed research, further trade should be at the top of the global agenda if we are to improve the world. The research considers the job loss concerns put forward by politicians from rich countries. It maps out the additional costs of free trade, such as job loss, reskilling needs, and workers leaving the job market. The model also discloses the advantages of free trade, such as higher incomes, lifting people out of poverty, and improving the welfare of the world’s poorest population. The groundbreaking study is the first to evaluate costs and benefits at the global and rich and poor countries’ level.
If global trade can be increased by 5%, then the present-day cost for all workers across the world would be one trillion dollars into the future. This cost is a cause for concern amongst many populist politicians. Yet, the benefits for humankind could reach $11 trillion, making this a sound deal for the world. Governments around the world should assist the ones who are hurt by free trade, but the significant surplus resulting from free trade provides a vast development opportunity to raise incomes and lift people out of poverty.
Rich countries have significantly cooled off from trade because they make up a larger percentage of the global economy, contributing to them gaining 60% of the 11 trillion dollars. However, they experience more than 90% of the costs. Although this validates some political concerns, it undermines the bigger picture. Rich countries gain $7 for every dollar of costs. This overlooks the incredible opportunity that trade provides for the poorer half of the world. The costs for these countries are minimal, amounting to $15 billion, but the benefits far exceed a trillion dollars. Thus, the economists conclude that for every dollar of loss, there are phenomenal $95 of long-term benefits.
If we want to make the world a better place, we must prioritize the most efficient policies. The evidence suggests that free trade is one of the most effective ways to deliver better lives and increased incomes.
