Why countries still prefer open trade
On Sunday, 15 Asian nations signed one of the largest free-trade deals in history, covering about 30% of the world’s population. On Jan. 1, more than 30 African countries will start to implement a free-trade zone from Cairo to Cape Town. And this year, a number of Arab countries have set up economic ties with tech-savvy Israel and also decided, in response to COVID-19, to establish a food supply network.
In an era of populist backlash to globalization, these sorts of agreements aren’t suppose to happen. And with the pandemic, the disruption to the movement of people and goods has chilled the world economy. All this contributes to what The Economist calls “slowbalisation,” or less interest by nations in a dependency on global supply chains.
In the United States, hostility to the impact of globalization on workers could cause the incoming Biden administration to be as wary of trade deals as President Donald Trump. “As president, I will not enter into any new trade agreements until we have invested in Americans and equipped them to succeed in the global economy,” wrote now President-elect Joe Biden in a Foreign Affairs article last spring. He also promised a “buy American” approach to trade.
Even with the headwinds against interdependence, nations still search for trade deals. Why? A big reason is they realize domestic growth depends heavily on the flow of ideas across borders. Closing off imports of physical goods can hinder the import of intangible goods, such as the latest research in digital technologies.
“Ideas are different from all other goods in that they can be used simultaneously by any number of people,” writes a group of Stanford University scholars in the American Economic Review. “Economic growth arises from people creating ideas.”
Despite a pandemic and populist sentiments against globalization, countries need each other to build an “innovation economy.” From 2004 to 2014, the flow of knowledge accounted for about 40% of the growth in global productivity, finds the International Monetary Fund. That flow is needed now more than ever. “The unstoppable advance of digital technologies might provide a new tailwind to ensure the continuing growth in [global value chains] activity worldwide,” said economist Pol Antràs of Harvard University in a speech at the European Central Bank last week.
The new Asia trade pact is just the latest signal of a desire for progress through shared ideas rather than protectionism. The European Union is also aggressively seeking trade deals while shoring up its own success in breaking down trade barriers among its member states. The capacity to tap ideas yet underutilized or undiscovered knows no boundaries.
