Donald Trump. Picture: REUTERS/Carlo Allegri
Donald Trump. Picture: REUTERS/Carlo Allegri

Developing countries suddenly have a new role: convincing Washington about the desirability of the Washington Consensus.

Not much is clear about the policy of the US under its new political administration, but one thing has become brutally clear: the US is planning to roll back global free trade.

US president-elect Donald Trump said he planned to begin pulling out of the 12-country Pacific trade deal "on day one" of his term in office. That decision and other statements like it have caused ripples throughout the world and are raising concerns that the US will turn its back on its Asian allies and, by default, allow China to assert its economic might in the region. The Financial Times reported this week that Japanese Prime Minister Shinzo Abe poured cold water on the idea that the trade deal could go ahead without the US.

The comments underline a broader fear that under Trump, some of the basic tenets of global trade will be undermined. For the best part of a century, US support for free trade has underpinned the global trading system. That implicit guarantee has fostered globalisation and generated enormous global wealth, despite vociferous opposition from a broad range of groups including nationalist politicians, left-wing academics and labour unions. Yet the benefits gleaned from free trade are unimpeachable.

In a sense, the US is the best example of how free trade, on aggregate, benefits both sides of the trade relationship. US Bureau of Labour statistics show that from 1940 to the present, international trade as a proportion of total US GDP has risen from about 5% to about 30% now. Real wages in every sector other than retail have increased massively in that time. Wages in manufacturing, for example, more than doubled.

In a 2006 survey of US economists, 87.5% agreed with the "proposition that the US should eliminate remaining tariffs and other barriers to trade". There is almost no other topic that unites economists around the world than the desirability of free trade, and few topics that have been as thoroughly researched.

It’s not only global wealth that is bolstered by free trade but global security too. It is often said, perhaps rather glibly, that there has never been a war between two countries with McDonald’s franchises. Nevertheless, it is broadly true that trade builds understanding and trust through mutual interdependence.

The problem is that even though the empirical evidence shows that on average, the gains made through free trade are larger than the gains made by protecting domestic industry through trade restrictions, there is no doubt that the effect is uneven.

The same figures listed above show that if you take a shorter span of time, it’s clear that free trade creates new winners and losers. Real wages in the manufacturing sector, for example, have been static in the US since 1979. Most of the gains in all sectors were achieved in the 1940-1980 period, despite free trade increasing gradually but steadily through the whole period.

As economist Trudi Makhaya wrote in Business Day this week, the Washington Consensus used to define the world view that infused global governance as led by the US. "Those developing countries that did not subscribe to free trade and unbridled markets were ridiculed for being backward and economically illiterate. Now Washington is about to be taken over by a protectionist nationalist. It looks like the purveyors of open markets and globalisation failed to evangelise in their own backyard."

The main point, however, is that it is now up to the developing world to sell the idea of open markets and global co-operation to a US president.

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