Trade must not become victim of politics
October 01, 2008
by Morton Sosland
Pondering the long-term consequences of recent exceptional volatility of grain and commodity prices often leads to questions being asked about the virtues of economic globalization and even to challenges of the value of trade itself. It is not just in this year’s election politics in the United States that trade has become a central issue. Thoughtful economists, including a few who have shifted from being ardent advocates of liberal trade to questioners of its value, have started asking all sorts of questions about positions that for years escaped even minimal challenge. No industry has a greater stake in the outcome of the current debate about trade — whether it will continue to serve the ultimate purpose of helping to assure an adequate supply of food — than does the industry that deals in and processes grain. This industry stands proud as an advocate of liberalized trade, helping to prove the case for trade expansion over many centuries that go back quite literally to the beginning of history.
Trade liberalization has been the winner in past arguments over its standing on the basis of a number of advantages. Most basic is the view that opening trade benefits both exporting and importing countries, the former primarily by boosting the economy and the latter by providing goods and services at the lowest costs. Considering the way that buoyant exports have been a mainstay of the present-day U.S. economy when other sectors are floundering, it seems remarkable that politicians seeking election could cast doubts on trade’s value. Even though export demand might contribute to cost upturns in a situation like that experienced in the past year, millers and food manufacturers in general are aware that without global markets, domestic production of essential crops would be drastically curtailed.
Political attacks on trade are being used to identify a culprit at a time of rising income inequality and growing concern over job status. Competition provided by low-wage nations becomes the target of trade critics looking to blame the failings of the economy on trade agreements and government officials charged with failing to secure concessions. These arguments are usually made without acknowledging the role of new technology in minimizing the need for manufacturing jobs. Offers to step up training are dismissed as having little substance when attacking trade has gained widespread appeal.
In responding to these scary challenges, the grain industry is best served by asserting that many of the current economic problems are due not to the failure of trade, but to the shortfalls of previous steps to eliminate barriers to open and, yes, free trade. Delving into current trade issues, a highly instructive point may be made by examining the global rice market. Rice prices were the last of the grains to post dramatic advances, but when this market started rising, its course was breath-taking. Rice’s moves reflected the way restrictions on trade, including limits on both exports and imports, have curtailed the availability of rice through normal channels. The restrictions on exports imposed by a number of countries, especially in Asia, have sent a message to farmers deprived of participating in the buoyant global market.
The point made with respect to rice, which has applicability to the entire supply chain, is that supply and trade must grow together in order to offset market tightness. Trade agreements that offer significant benefits to participating countries are essential to ending excessive restrictions on global commerce. Too much of the global trade in commodities is governed by nations and institutions best described as "having only one foot in the modern age." It is through trade that these nations become a part of the modern world, where unfettered commerce offers advances for the poorest of nations, while providing the developed countries with solid gains that are only realizable by pursuing this very course. This is the way to assure that success in global trade is not a threat to domestic well-being but will benefit all nations and all peoples.