A Case Against Free Trade and Over-Globalization

The obsession of today’s world elites with free trade and globalization is misplaced. This is not because the theory of comparative advantage — upon which free trade doctrine is based — is wrong, but because the practice is more complex and the world has changed dramatically since the days of Smith and Ricardo, the pioneers of free trade ideas. In their day trade was almost entirely in simple final goods such as clothes or furniture. Now, by contrast, exchange can entail intermediate and final goods, countless services, capital and labor movements and financial flows. All such activities constitute modern economic globalization. But each of these have their own complexities, which preclude them from being readily subject to the free market disciplines which strict free traders want. Such complexities also make it difficult to assess whether or not liberalization of these global flows is as beneficial as globalists claim. Examination by the author of numerous diverse studies suggests that the evidence for benefits from globalization is mixed, that gains from liberalization are now very small for most countries and that the costs of free trade agreements are rarely considered. Even mainstream economic modelling now usually finds benefits from free trade agreements to be less than half of one percent of GDP, which could easily be outweighed by the costs if these were to be thoroughly assessed. This may mean that integration has gone too far and the world is becoming over-globalized. Indeed, forecasts of rising economic growth under globalization have in fact seen the exact opposite, growth rates have declined persistently with encroaching global integration, although the causes of this are not clear. Furthermore, even the basic theory of comparative advantage is more complex in practice because it now seems that advantages can change over time and may be adjusted or upgraded by deliberate policy intervention, to the benefit of the country concerned. This means that governments should carefully and critically assess economic liberalization proposals, including balancing benefits against costs, and should retain the capacity for cautious policy intervention, including through various forms of protection, industry policy, regulations and policy planning, all under strong democratic supervision.