Yves here. Jomo provides a high-level view of how the US promoted selective trade liberalization, designed to preserve US and advanced economy advantages. A key element was the way the WTO promoted neoliberalism. Due to his focus on trade rules, Jomo skips over the role of finance. As readers know well, IMF rescues always require “reforms,” as in reduced labor rights. That is intended to reduce their bargaining power and eventually pay levels, in the name of competitiveness. Similarly, the World Bank, through the International Finance Corporation, pressed developing countries to establish capital markets. That facilitated hot money inflows, which when they all ran for the exit (say due to the Fed raising interest rates and thus making US debt instruments relatively more attractive) produces downdrafts and even crises.

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Jomo’s website

President Trump has blamed trade liberalization advocated by globalists for US deindustrialisation. Instead, his own weaponisation of economic policies, instruments and institutions purport to ‘make America great again’ (MAGA).

Trump 1.0 claimed to do so by ‘reshoring’ industries that had relocated abroad. Trump 2.0 uses more threats to secure investments, markets and other economic advantages for US big business, at the expense of others, including allies and especially the Global South.

While rejecting globalists’ claim that trade liberalization enhances growth, employment and incomes for all, his own ‘America First’ policies are slowing the world economy, including the US.

Post-War Trade Policy

The US has dominated international relations and institutions, including multilateral economic governance, since World War Two (WW2). The US Congress rejected the 1948 Havana Charter proposing the International Trade Organisation (ITO).

Selective trade liberalization was key to the ‘neoliberal’ Washington Consensus, which has been recommended, if not required, by multilateral economic institutions from the 1980s.

Meanwhile, the neoliberal era has been associated with slower, more volatile growth than the post-war Keynesian ‘Golden Age’ of the first quarter-century after WW2.

The West pushed for the World Trade Organization (WTO) to consolidate the international economic order on a neoliberal basis. The 1994 Marrakech Agreement establishing the WTO left little room for development policy initiatives.

For many in the West, neoliberal trade liberalization ended with the first Trump presidency from 2017. However, the reversal had begun earlier in the 21st century, especially after the 2008-09 global (actually Western) financial crisis.

However, Trump should be acknowledged for brazenly weaponizing international trade and investment instruments against the rest of the world, including US allies.

Hegemony

Free trade advocate Jagdish Bhagwati showed that anything less than trade multilateralism, including plurilateral and bilateral free trade agreements, is sub-optimal and unfair.

Compromises, including those promoted by international financial institutions and the OECD, have, instead, strengthened US and Western hegemony.

Postwar decolonisation of Asia and Africa has seen discontent grow in multilateral institutions, prompting selective Western undermining of multilateralism after the Cold War.

Unable to ensure the WTO’s dispute settlement system consistently protects and advances its interests, the US has paralysed it by blocking key appointments since the Obama presidency.

Collective assertiveness by developing countries in multilateral fora has mitigated some adverse consequences of international economic integration under Western auspices.

Partial and uneven trade liberalization has constrained Global South industrialisation. Recent deindustrialisation has reduced manufacturing’s share of national output in many developing countries.

Little new manufacturing capacity has developed in Africa beyond some minimal import-substituting and resource-processing activities protected by high transport costs.

Divide and Rule

Economic concessions, such as trade preferences, to developing countries have been used to divide the Global South, including the ‘least developed countries’ and ‘small island developing states’, effectively weakening their collective negotiating strength.

Trade liberalization has also reduced tariff revenue, especially important for the poorest developing countries, where it often accounted for up to half of total tax collected.

Additional taxes, typically from consumption or income, have never compensated for tariff revenue losses due to trade liberalization. This has undermined their already weak fiscal capacities, often requiring them to borrow even more.

Promoting food agriculture in supposedly ‘land-abundant’ African countries was supposed to make them more food-secure and even export-competitive but there is no evidence this has happened.

Developing nations have long unsuccessfully asked the Global North to eliminate agricultural subsidies, tariffs, and non-tariff import barriers that protect their output.

This would make food production in developing countries more competitive. But rich countries have long insisted that developing countries must first ‘reciprocate’, e.g., by eliminating their manufacturing tariffs.

Structural adjustment has also undermined agricultural infrastructure and smallholder productivity in many developing countries. Meanwhile, lower farm subsidies in Europe have raised many food import prices in the South.

Gains From Trade?

Purported gains from trade liberalization are often either merely theoretical or one-time gains from static understandings of comparative advantage, with no cumulative potential.

Claims of gains from trade liberalization presume internationally competitive productive and export capacities capable of generating a strong positive supply response.

Such preconditions are unlikely in most developing countries, especially the poorest, and need to be developed, typically by protecting against external market pressures.

Most studies of realistically achievable outcomes of WTO Doha Round negotiations from 2001, including those for the World Bank, projected net losses for most developing economies, except for a few Asian economies.

There is also no robust evidence of trade liberalization significantly reducing poverty and hunger. Developing countries, especially the poorest ones and those in sub-Saharan Africa, would be worse off.

One may well ask why developing countries have to be bribed with ‘aid for trade’ if it is in their own best interests to commit to trade liberalization, multilateral or otherwise.

Worse, trade liberalization has made sustainable development nearly impossible by significantly reducing policy options for aspiring developmental states, especially for trade, industrial, investment and technology policies.