Shifting winds on free trade

Economists famously disagree on everything; the old joke goes that if you ask five economists for a prediction you’ll get six different answers. About the only thing the profession broadly agrees on is the benefit of free trade.

Free trade is the sine qua non of capitalism. Free trade – both across countries and within borders – generates competition, which drives innovation, and fuels markets and the efficient allocation of resources.

Both sides of politics have made crucial gains on dismantling protectionism, from Whitlam through Hawke and Howard. Yet increasingly, neither side of politics understands or can articulate the benefits of free trade and foreign investment. Indeed, for different reasons, both left and right are in danger of moving away from free trade as an ideal.

Elements of the left have always been hostile to free trade. For trade unionists, the availability of cheap foreign goods threatened jobs and wage gains (and was mixed at times with not an inconsiderable amount of xenophobia). Hence the union campaign against the China Free Trade Agreement.

As unions have become less important in society, so too has left-wing politics moved from class-based to identity-based politics, and the inequality of welfare. Many on the left now object to free trade on the grounds it exploits poor foreign workers, preferring instead to talk about ‘fair’ trade and multi-national tax avoidance.

They choose to ignore the enormous lift in living standards free trade made possible.

Yet as the left moved away from the working class, the right has courted them. Pandering to anti-immigration sentiment, together with an aggressive trade nationalism (see Trump’s comments on Chinese tariffs), has led some on the right to talk about free trade only from the perspective of opportunities for exporters to chisel gains out of foreigners.

Certainly, many conservatives in regional areas have long been vocally opposed to inward foreign investment and control. Nor are the Liberal government’s strengthening of anti-dumping provisions and a crackdown on foreign ownership of residential property good signs.

Free trade has always been important, but never popular. If neither side of politics fight for its benefits, we risk free trade becoming a relic of a bygone era of economic prosperity.