Foreign trade

A worldwide consensus in favour of free trade has taken hold of economic

opinion. Notwithstanding setbacks such as the failed Seattle and Cancun trade
summits and the disruptive effects of the 2003 Iraq war, the consensus has
remained firm. Political considerations played a key part in the development of
this consensus, motivated by the desire to avoid trade wars and to promote faster
growth. Business has supported free trade through its representative organisations, though the
reaction ‘on the ground’ depends greatly on whether the particular enterprise is export- or home
market-oriented. Export industries tend to be
enthusiastic proponents of the merits of trade liberalisation. To them, freer trade
means easier access to foreign markets, profitable investment opportunities and a
greater spread of fixed costs. Import-competing firms in ‘sensitive’ sectors of the
economy tend to see things differently. To them freer trade means the erosion of
domestic market shares and the danger of job losses. The views of the pro-trade
group have clearly prevailed.
There is growing evidence that trade liberalisation brings benefits to those
countries ready to grasp the opportunities of global markets. The resultant gains
outweigh the losses caused by adjustment to freer trade. Efforts to close the
domestic market to foreign competition have proved both unavailing and
counter-productive. Free trade versus protection is no longer the main issue in
international trade. The conditions under which liberalised trade is conducted –
the maintenance of ‘level playing fields’ and fair trading rules among developed
economies, but in particular between developed and developing countries – have
become the major subject of debate.
Economics concludes that foreign trade brings major benefits, but the reasoning behind this
conclusion sometimes appears counter-intuitive, or just wrong.
What many businesses might consider a ‘bad’ thing – cheaper imports, pressure
on domestic market shares and job losses in industries which compete with
imports – appear in economic models as a ‘good’ thing: an expression of the gains
that accrue to society from trade. According to the economist’s view, a country
sells exports only in order to enjoy more consumption of imports. Higher exports
are not a gain in the true sense. They imply that goods produced at home are