Rebuttal to “No Fair Trade” by Joseph Stiglitz

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In his article, Stiglitz (n.d.) argues that in the framework of the current state, there is no fair trade that is claimed to result from global economic liberalization. He claims that the assumption that the mentioned process is able to benefit everyone cannot be considered rational. The developing countries rather face numerous debt burdens than obtain genuine opportunities for economic growth and development. However, the scholarly dimension allows disagreeing with such a position, given an impressive extent of supporting evidence. Below, the rebuttal to the key arguments contained in the article “No fair trade” by Joseph Stiglitz will be provided.

The key suggestion provided by Stiglitz (2008) is as follows, “Modern economic theory has shown that in the imperfect world in which we live, trade liberalization can actually make everyone worse off (p. 223). This statement does not seem to reflect reality to the necessary extent. It should be stated that trade liberalization is a form of foreign economic policy, which is a complex of measures aimed at promoting foreign economic activity, the gradual abolition of existing restrictions in foreign trade, reduction of import and export duty rates, providing tariff privileges during foreign economic operations (Hufbauer, 2008). This is the process of expanding the will of economic actions of business entities, withdrawing restrictions on financial and economic activity, and the emancipation of entrepreneurship.

Integration into the global economy was a powerful means of promoting economic growth, development, and reduction of poverty for the majority of countries. Over the past 20 years, the growth of world trade averaged 6 percent per year, which is twice as fast as the world volume of production (Gnangnon, 2017). But trade was an increased in the engine and before that. Since 1947, when a General Agreement on Tariffs and Trade (GATT) was created, the world trading system won eight rounds of multilateral trade liberalization, as well as unilateral and regional liberalization. Indeed, the penultimate of these eight rounds (the so-called Uruguay Round, which ended in 1994) led to the creation of a global trade organization that will help manage the growing number of multilateral trade agreements.

However, Stiglitz (2008) argues that the presence of international trade agreements does not contribute to desirable outcomes and gives the example of China in this vein – a country that adheres to protectionism to an exact degree. In this framework, it should be claimed that these agreements are the foundation for the policy that makes the economy open to trade and investment with the world needed for sustainable economic growth – evidence of this is obvious. No country in recent decades has achieved financial success in terms of a significant increase in the living standards of their people, not being open to the rest of the world (Hufbauer, 2008). In contrast, the opening of trade (along with the introduction of foreign direct investment) was an important element of the economic success of East Asia, where the average import tariff fell from 30 to 10 percent over the past 20 years.

The opening of its economy for global interactions is important to allow many developing countries to produce competitive advantages in the production of certain products. In these countries, as defined by the world bank as “new globalizers”, the number of people living in absolute poverty has decreased by more than 120 million (14 percent) in the period from 1993 to 1998 (Gnangnon, 2017). There is a lot of evidence that more focused on the foreign world, as a rule, are constantly growing faster than domestic trade countries. Indeed, one conclusion is that the benefits of liberalization of trade may exceed the cost more than ten times. Countries that have opened their economy in recent years, including India and Pakistan, faced faster growth (Adeel-Farooq et al., 2017). On average, those developing countries that dramatically reduced tariffs in the 1980s grew faster than those that did not do this.

Then, Stiglitz (2008) states that trade liberalization does not lead to substantial benefits for developing countries and even harms them. It might be assumed that the situation is the opposite. Developing countries spend significant funds on hidden subsidies, often directed to narrow, privileged interests that provide protection for domestic trade. In addition, accelerated growth, which is the result of free trade, has a tendency to increase the income of the poor in about the same proportion as revenues in general. For unskilled workers, new jobs are created that raise them in the middle class. In general, since 2000, the inequality between countries is reduced, which reflects the faster economic growth in developing countries, partly as a result of trade liberalization.

The potential benefits from eliminating the rest of the trading barriers are significant. Estimates of benefits from eliminating all barriers to trade in goods range from 250 to 680 billion dollars per year. About two-thirds of this income will fall into industrialized countries. But the amount entering the developing countries will still be more than twice the level of assistance they receive at present. Although improving access to the markets of other nations is profitable, the countries will benefit most from the liberalization of their own markets (Gnangnon, 2017). The main benefits for industrialized countries will come from the liberalization of their agricultural needs. Developing countries will equally benefit from the liberalization of production and agriculture. However, a group of low-income countries most benefits from the liberalization of agriculture in industrialized countries due to the greater relative importance of agriculture in their economy.

Expansion of access to markets for developing countries provides them to use trade for the purpose of development and reduction of poverty. Granting the poorest countries of duty-free and warp access to world markets brought great benefits to these countries with small costs for the rest of the world (Gnangnon, 2017). Recent international initiatives on opening markets and some other countries are important steps in this direction. In order to ensure complete efficiency, such access should be constant, extend to all goods, and be accompanied by simple and transparent rules of origin. This would give the poorest reasons for the continuation of severe internal reforms and ensure effective use of streams of relief of debt and assistance.

Liberalization of foreign economic activity can lead to improving the welfare of the population of local residents due to a more efficient distribution of local resources. The restriction of imports of foreign goods contributes to local production and, thus, contributes to the expansion of employment in these countries. The removal of this restriction leads to the liberalization of the importation of goods for sale in the domestic market and for export production and contributes to the transition from the issue of goods intended for substitution of imports to the extensive production of export goods (Hufbauer, 2008). This creates both short-term and long-term incentives for economic growth since such countries adapt to new ways to distribute resources in their own interests.

Finally, according to Stiglitz (2008), trade liberalization is a result of “waxing politics,” which implies that policy-makers mostly focus on political factors and successes rather than on consistent economic growth (p. 223). In any case, factors such as improved technologies, the availability of information, and lower prices in the domestic market really play a significant role in promoting economic growth in any country with or without liberalization. However, to achieve the best financial results regarding trade liberalization, additional policies specific to each country are needed, which include accounting for infrastructure, level and value of education, as well as financial regulation policies and other macroeconomic factors of specific countries (Gnangnon, 2017).

Within this scope, it seems reasonable to note that great assistance in framing appropriate economic policy is provided by international organizations. Currently, trade is an important indicator of the development of the economy of both a separate country and the whole world. This is primarily due to the enhancement of the dependence of many countries on exports, and therefore the drawbacks in trade are dangerous for the economy. This fact confirms the need for the existence of such an organizational structure as the World Trade Organization (WTO), and the exercise of effective multilateral regulation of trade processes as well as trade liberalization, as protectionism leads to a reduction in exports and imports of goods and services (Imbruno, 2016). Currently, many countries, including the participants of the WTO, are seeking to apply the measures of hidden protectionism, and therefore, in the regulation of trade, the number of non-tariff regulations is growing.

To conclude, the article “No fair trade” by Joseph Stiglitz was discussed. The crucial weakness of this article seems to be the non-recognition of the benefits of trade liberalization for economies. The scholarly dimension gave a sufficient volume of evidence to disagree with Stiglitz’s position. It was demonstrated how trade liberalization should be considered – an essential prerequisite for countries’ growth and development, and modern international institutions tend to assist in this.

References

Adeel-Farooq, R.M., Abu Bakar, N.A., and Raji, J.O. (2017). Trade openness, financial liberalization and economic growth: The case of Pakistan and India. South Asian Journal of Business Studies, 6(3), 229–246.

Gnangnon, S. K. (2017). Multilateral trade liberalization and government revenue. Journal of Economic Integration, 32(3), 586–614.

Hufbauer, G. (2008). Free trade. PDF file.

Imbruno, M. (2016). China and WTO liberalization: Imports, tariffs and non-tariff barriers. China Economic Review, 38, 222–237.

Stiglitz, J. E. (2008). Fair trade. PDF file.

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Rebuttal to “No Fair Trade” by Joseph Stiglitz

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