Free trade is under attack everywhere, but the ideal is as valid now as it was when David Ricardo and Adam Smith first theorised about it.
At no time since the post-war creation of the global trading rules have the prospects for free trade been so bleak. As much of the developed world enters recession, rising protectionism not only risks deepening and prolonging economic suffering, it is increasing the risk of war.
The General Agreement on Tariffs and Trade (GATT) was created after World War II to prevent World War III. Now its successor, the World Trade Organization (WTO), is in poor shape, the contest between the United States and China having inflicted terrible damage to it.
The United States mid-term elections are likely to deliver even stronger protectionist resolve in the Congress.
In Britain, a succession of conservative prime ministers came up with the bright idea that selling into a small market was better than selling into a big one. Now that these Brexiteers have their wish, they are wondering why their country is in recession, with the Bank of England warning last week that it is likely to be the longest since records began.
It is not implausible that eventually, in response to Britain leaving the European Union (EU), Scotland will leave Britain to rejoin the EU, while the two Irelands will unite and leave Britain, with only England and Wales remaining in the not so great Britain.
Trump’s tariffs from his trade war with China remain in place, as do China’s retaliatory tariffs against the United States.
The dispute-settling system at the World Trade Organization remains dysfunctional, a consequence of the United States’ ongoing refusal to allow the appointment of new judges to the defunct Appellate Body.
China is maintaining heavy import restrictions on Australian barley, wine and several other products, although Beijing has sent some signals of a possible reproachment. China asserts that Australia’s anti-dumping duties on a range of its products are against the World Trade Organization’s rules.
The idea behind creating the GATT was simple: if countries traded with each other, becoming economically interdependent, they would have less reason to invade each other.
The GATT’s founding nations, which included Australia, believed the international rules-based trading system would enrich all member countries, enabling each to specialise in the production of goods and services in which it had a comparative advantage, and to export them in exchange for goods and services in which it had a comparative disadvantage.
These ideas dated back to the beginnings of economic theory, to David Ricardo and Adam Smith. They hold true to this day.
But around the world we are seeing rising economic nationalism that seeks to increase the prosperity and power of a nation to the detriment of others through the application of restrictive trade barriers.
From the mid-1980s, Australia has distinguished itself by rejecting mercantilism in favour of tariff reductions and in most cases tariff elimination. Australia’s maximum tariff rate is just 5 per cent.
Trade minister Don Farrell is continuing that modern Australian tradition. At the WTO’s ministerial meeting in June 2022, the 164 members agreed to work towards a properly functioning dispute settlement system by 2024 and to end subsidies to illegal, unreported and unregulated (IUU) fishing.
Senator Farrell will deliver the annual APEC Study Centre lecture next week at RMIT University, where he will set out the Australia government’s approach to trade and economic cooperation in APEC economies and the wider world.
Australia’s fine record as a free-trading nation gives it influence well beyond its size. Australia instigated the creation of APEC, which includes the United States, China and Russia. Australia brokered an APEC agreement to limit tariffs on 54 environmental goods to 5 per cent and has been influential in the conclusion of several WTO agreements including on agriculture and trade facilitation.
The Australian APEC Study Centre is ambitiously developing a practical proposal for a Free Trade Area of the Asia Pacific, a voluntary, non-discriminatory agreement that would be constructed in instalments over an extended period of time.
Even thinking about a free trade area involving the United States, China and Russia could be considered an early sign of madness.
It is said that a long journey begins with a single step. Someone needs to take that step as a champion of free trade if we are to prevent the world breaking into rival trading blocs, a precursor to war.
Craig Emerson is director of the Australian APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University’s College of Business. He was Australia’s trade minister from 2010 to 2013.