Thursday, July 27, 2017

Is it possible for trade to be really free?

In early 19th century, David Ricardo proposed that "trade between nations could be mutually beneficial, even if one nation was more efficient than the other in all commodities", wrote Ajit Ranade. "Sure, free trade might hurt some people, but it's worth it, because in the end everyone is a winner." "The winners can compensate the losers and yet be ahead." That is within a nation, but why would a rich nation transfer wealth to a poor one? Western countries became rich by looting their colonies, as the British did to India. Moreover, politicians are not elected to make other countries richer, which is clearly illustrated by Germany. Chancellor Gerhard Schroder reformed social benefits, known as Hartz reforms, which forced people to accept lower wages, resulting in booming employment and low wage growth. However, Germany benefits hugely from a weak euro, which is common currency for the 19 countries of the eurozone. This has boosted German exports. Normally, when a country becomes wealthy its currency becomes stronger so that its goods become pricey, compared to those of others, but economic problems in other countries, like Greece, keep the euro weak and Germany takes full advantage. Germany had a current account surplus of $297 billion in 2016, more than China, which is giving heartburn to other leaders, including Donald Trump. Thus free trade does not help every nation. "For instance, the North American Free Trade Agreement, that came into force in 1994, was supposed to create 200,000 new jobs due to exports to Mexico. But by 2010, the increased trade deficit had eliminated close to 700,000 jobs, with job losses in every state." Prof Dani Rodrik wrote that economists have never acknowledged that many people lost out due to globalization, and that has created enormous public anger. Nations resort to currency manipulation, exploitation of labor and degradation of environment to increase profits. So what of India? Frustrated by the gridlock in the Doha round of WTO talks India signed free trade agreements with neighboring countries and regions. Trade deficits with Asean nations, Korea and Japan have more than doubled. India hoped to gain in services, but, while goods can be easily transported across borders, services need humans and every country has visa restrictions. Infosys is hiring 10,000 workers in the US, and more than 50% of Wipro employees in the US will be Americans, because of Trump's threat on H1B visas. In a speech in Delhi, former prime minister of Canada, Stephen Harper admitted that globalization suits the elite who can easily cross borders but not the poor who are restricted within national boundaries. If we are losing from free trade what should we do?

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