The so-called Brexit has, and will continue to, drive a flurry of news coverage predicting the end of the European Union and the modern International Community. Despite the alarms, the Brexit is the result of a necessary and predictable recalibration of Britain’s diplomatic relations with the European Union. Unfortunately, international investors and political figures have a habit of ensuring self-fulfilling prophecies come true by overreacting to the potential for economic troubles in the future. Other nations and foreign businesses should be more than willing to work with Britain, if Britain continues to offer economic opportunities.
The problem is that the economic, security, and diplomatic ties of countries are no longer simply strategic arrangements between nation-states. They have become so politically charged that events like the Brexit Referendum are treated as emotional decisions. Political leaders have come to see their relationships with other nations more as romantic relations than business dealings. In practice, trade with Britain will change very little, which means the economic opportunities Britain offers should not change. How Britain negotiates trade will change. Thanks to politics, changes in the deal-making process could hurt Britain’s economic outlook.
Unfortunately, the relationship between Great Britain and the European Union is not the only partnerships in turmoil due to misaligned interests in need of recalibration. In essence, the European Union, which was advanced by the establishment of the Eurozone, was intended to transform Europe into a massive free trade zone. As such, the Brexit vote was also a referendum on free trade, which is the same issue that threatens to spark a far more serious trade war between the US and its partners.
One thing both Republican Nominee Donald Trump and Democrat Nominee Hillary Clinton agree on is their opposition to the transpacific partnership (TPP). Consequently, the 2016 US Presidential Election is likely to halt the expansion of free trade, i.e. TPP. A reversal of deals like NAFTA could even be next. For free trade advocates and the biggest beneficiaries of free trade, the threat of a trade war is a nightmare about to come true. The problem is not, however, those who oppose free trade; it is those who use emotions to push a free-trade, globalist agenda.
The Brexit and the rise of anti-free trade political leaders in the US, as well as elsewhere, represent a growing backlash against free trade and the manner in which trade agreements, such as NAFTA and TPP, are negotiated to serve special interests. The push for free trade, in general, fails to recognize the widespread lack of faith in “free trade” and the belief that free trade is a net negative to average people. Where pro-free trade advocates like to trumpet around statistics that demonstrate the aggregate benefits of free trade, the apparent economic impact of free trade on the average individual’s finances is harmful.
In theory, a trade war is devastating to an economy, because it creates barriers to trade, thus starving the economy of economic activity. Not only do increases in tariffs raise import and export prices, they undermine the sustainability of global production by raising the cost of outsourcing too quickly. Sharp increases also create uncertainty, which inhibits consumer spending and capital investment. This, in turn, helps stall and destabilize the economy. On the other hand, anti-free trade sentiments do not have to result in a trade war just as the Brexit does not have to result in economic devastation for the Europe.
There are benefits to free trade, but there are also costs and those costs have created financial problems for average people. Unfortunately, most of the pro-free trade arguments tend to be one-dimensional while neither side can fully support their conclusion. Quite frankly, the endless back and forth between free trade opponents and advocates has done little to address public concerns or support better economic policies. In other words, politics and socioeconomic forces are polarizing people into two camps: those who support free trade and those who resist trade with true protectionist policies.
Given that domestic governments must tax businesses at uneven rates and regulate industries according to their capacities and needs while government involvement in the economy is unavoidable and workers must be paid in line with their cost of living, free trade policies do not create “free trade” and cannot offer the predicted benefits of free trade. In other words, free trade in practice does not equate to free trade in theory. The removal of tariffs distorts the economy in favor of imports, thereby catering to special interests instead of fostering sustainable trade; whereas, the removal of technical barriers fosters trade by making it easier.
That said, the biggest issue with tariff-free trade is that it deleverages workers and localized businesses by forcing them to compete as part of a global workforce struggling to provide for global demand. Because free trade essentially turns the global economy into a lowest bidder economy, the future bargaining power of workers in poor countries is also hindered. Based on “supply and demand,” a massive global workforce without enough work means workers face downward pressure on their wages. Conversely, the need to enhance global supply to meet global demand puts upward pressure on the cost of natural resources and goods.
The economic interests of trade partners shift very rapidly with the changing nature of the economy, especially in an era defined by democratic uprisings and a pull back from rapid globalization to community-centered thinking. Because a stable global economy depends on healthy national economies, national economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests, yet are not.
Because growing anti-free trade sentiments are pushing America, and the world, toward a global trade war, this movement against can only be delayed, but never stopped. The best course for the political elite and policymakers is to avoid a trade war by embracing trade instead of forcing free trade onto the Peoples of the world. Instead of feeding opposition to trade and provoking a dramatic embrace of trade wars, which the American People do not seem to fear, the best course is to turn to diplomacy. It is necessary to confront this misalignment of the population’s interests and public policy.
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