The Impact of FTAs in a Multi-polar World

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[This Commentary originally appeared in the March 15, 1990 issue of The Mendon-Honeoye Falls-Lima Sentinel.]

CarosaCommentaryNewLogo_259Sometimes sovereign nations and little children behave in the same way. Both can act selfish and territorial. Both can ignore the long term consequences of their short term orientation. Each can view the world egocentrically, seeking always to win and never to share.

Despite these attributes, we generally tolerate children. After all, they quickly grow up into adults. Countries, on the other hand, take a lot longer to sprout a mature bearing.

We may offer the argument that nations, no matter how old, will always acquit themselves like children. They do, of course, have the obligation to protect their citizenry. But citizens, like shareholders, often display the awful propensity towards short term thinking. One way or another, this filters up to their government leaders.

No domain shows this aptitude more than international trade. Traditionally, countries have sought to bolster their own people’s standard of living at the expense of another people. The Age of Exploration, as our elementary school teachers called it, really had little to do with an actual desire to explore the unknown. In fact, the Spanish hired Columbus to sail across the Atlantic because the Portuguese had already claimed the trade route around the Horn of Africa.

Colonialism afforded the motherland with a ready market and cheap raw materials. Both benefitted the citizens (at least some of them) of the home country. Unfortunately, while good for the more powerful nations, the outlying territories found colonial rule a wee bit dictatorial. Certainly, economic prosperity at home meant less freedom in the colonies.

Perhaps because America spawned from such humble beginnings, our nation had never taken to colonialism with the same selfish zest of the European nations. Instead, we have emphasized economic imperialism rather than political imperialism. In doing so, we were one of the first major powers to actively pursue a win-win international policy.

By opening our market to foreigners we provided them with the opportunity to bring hard (American) currency onto their economically beleaguered shores. In return, the United States economy received low cost goods both for consumers and manufacturers.

Behind all this lies the American ideal of freedom and independence. Our country’s primary trading partners were insured free markets and remained independent. International trade policy permitted us to begin creating a globe full of democracy.

Ironically, the ashes of World War II provided all nations a ready foundation from which to build. The eyes of freedom looked to the United States. Separated by two oceans, our country alone remained unscarred by that war. Our economic infrastructure still in place (and thriving), we used it as a model to rebuild Europe and Japan.

We succeeded, (although many might also suggest we mention The Winner’s Curse). Part of that success comes from our promotion of the General Agreement on Trade and Tariffs (GATT). GATT took the world away from the high tariffs introduced in the 1930’s and sought to liberalize international trade.

GATT possesses two primary principals. First, it evokes a multi-lateral concept, meaning its rules apply to all nations equally and that all nations equally agree to those rules. Second, it stresses those rules ahead of any results. In other words, GATT merely sets a stage fair and equitable to all trading partners and avoids demanding certain countries maintain certain export/import levels or certain trade balances.

As a result of American leadership, GATT opened up the world’s trading markets. It encouraged the flow of affordable and less expensive goods to both the American consumer and the world consumer.

Yet, today, many commentators (as well as government leaders) seem out to bury GATT. Even our own country, who while in a position of clear economic superiority could pretty much enjoin all other nations to follow the principles of GATT, appears to have jumped onto the anti-GATT bandwagon.

We currently see our planet evolving into a multi-polar world, i.e., one which is dominated by regional alliances. Multi-polarity can shatter the groundwork of GATT. Leading the change towards the multi-polar agreements have been a variety of actual and implied Free Trade Agreements (FTAs).

An FTA merely represents a regional version of GATT. The United States and Canada signed one a couple of years ago. The Can-Am FTA has provided the impetus for economic growth in the Buffalo-Niagara Falls area (and may eventually have a positive impact on our own metropolitan area).

FTAs can be a good thing. On the other hand, since they directly contradict the multi-lateral principle of GATT, FTAs may just lead the world’s nations down the same economically selfish path of the 1930s.

FTAs therefore trigger a red light. They can cause regional trade wars (which are no different than trade wars between nations). Nobody wins when that happens (although a few people do well in the short term).

We must, however, also concede FTAs may represent the first step in the evolution of the GATT principles. We may no longer need a hundred or so nations at the international trade bargaining table. Instead, FTAs might reduce the number of negotiators down to a handful, each identified with a particular trading region.

In the end, FTAs can be a successful short term bridge to the long term GATT solution.

(For those interested in pursuing this topic, may I suggest “U.S. Trade Policy at a Cross Road,” Robert E. Litan & Peter O. Suchman, Science, January 5, 1990.)

Last Week #50: Creative Chaos (originally published March 8, 1990)
Next Week #52: Banzai! (originally intended to be published March 22, 1990)

[What is this and why is here? See Interested in Discovering My Time Machine? for more details.]

Comments

  1. Chris Carosa says:

    Author’s Comment: Readers of this particular commentary received it very well, noting with pride how America helped shape the post-World War II economy (remember, many readers actually served or had close family members who service in World War II). Of note here was the then contemporary view of the ascendency of both Japan and a unified Germany at the expense of the United States. Ironically, even as this was written, Japan had already begun its descent from the apex of the global economic domination to the now decades-long stagnation which has infected its economy. Likewise, while still well above its European neighbors, Germany’s promise proved short-lived. And we don’t even have to mention the disposition of Latin America.

    It turns out FTAs reached their peak with the creation of the European Union. Since then, individual nations – particularly China and India – have replaced regional cauldrons of economic activity. As with earlier commentaries, perhaps the lesson here is to understand the enduring nature of economic cycles. No country or region leads every decade. Slow and steady means leading for the long term and letting this year’s spotlight shine on bright lights that tend to burn out more quickly.

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