Clearly there has been erosion in the confidence of the American people in trade policy. It is more serious than it has been for some years but at base, it is not a new phenomenon. People tend to forget that the NAFTA squeezed through the US Congress by a narrow margin back in 1993. President Clinton, during his first term, tried and failed to get what was then ‘Fast Track’ negotiating authority.
Let us see if we can agree on a more general point. Around the world, not just in Washington, trade is a hard sell politically. Like many trade negotiators I have been dodging protestors – frequently violent protestors – everywhere from New Delhi, Sao Paulo, Brussels, Geneva and let’s not forget the Battle in Seattle.
Unlike NZ, where there is a fairly strong pro-trade consensus, trade liberalisation is very unpopular in many places.
What is the problem here? Have we trade negotiators brought nothing but misery to the world? No, quite the contrary. There is overwhelming evidence that steady, incremental trade liberalisation, widening from its initial narrow focus on industrial tariffs, has underwritten a huge growth in trade, which has in turn been central to higher productivity, higher growth and the spread of technology to improve peoples’ lives.
Developing countries that have picked up on the message and developed strategies of export led growth have transformed their economies. We don’t need to imagine what Korea would be like today if South Korea had not embraced a market-led, export-led strategy. We don’t need to imagine it because we only need to look to their North to see it. I am sure you have all seen those satellite photos that, taken at night, show a dark patch on the Asian continent as the satellite moves across the DMZ from South to a North Korea, substantially without electricity, food or anything much of use to their people’s daily lives.
The same with West and East Germany.
Nor is this expansion of the trading system without highly favourable political and strategic consequences. This is far broader than merely commercial matters. There is an equation between open economic and open political markets. That is an equation that certain leaders in this great town – justifiably called the world’s capital – have always understood over the past 50 years. …
As the US works through the issues, I hope those responsible will not make light of this broader strategic point. That equation between open economic and open political markets has not gone away. If the trade issue is seen simply as some type of mercantilist score card, with pro-trade lobbies on one side and anti-trade lobbies on the other, you will not get the right result.
Free trade leads to freer countries. China still has a massively long way to go, but is far less repressive than decades ago.
Now I do not want to insult any merchants in the audience, but it is worth recalling that the intellectual father of the market economy famously said: “When two or more merchants are gathered in the same room, it is usually for the purpose of deceiving the public”.
The market economy must have appropriate regulatory frameworks around it to meet Adam Smith’s point and to be sustainable politically. The market economy has not failed by any rational historical measure – it has been an astonishing success compared with command or feudal economies. It has created vast wealth, a massive increase in life expectancy everywhere, mass literacy, a huge decline in hunger, malnutrition and disease, the spread of economic freedom and ultimately has underpinned the recent remorseless growth towards improved human rights and diverse forms of democratic government.
But completely unregulated capitalism does not make any sense, politically or economically. The problem with the current financial implosion is clearly that the regulatory frameworks had not kept up to the speed of financial innovation. In my view, it is not a failure of the market economy we are witnessing – it is a serious failure of the regulatory frameworks around the market economy.
What an excellent way to put it.
Robert Zoellick, now President of the World Bank and of course a former USTR of great distinction, pointed out recently that the World Bank has shown that 17 of the G20 countries that made a public promise to resist protectionism have implemented trade-restricting measures. Lowering the bar on legal protectionism is no small achievement.
I give you another example. Within the last few months New Zealand and Australia signed a deal with the ten countries of ASEAN whose quality likewise surprised onlookers. Again, within about a decade, we will have one large and fully integrated free trade zone involving the economies of Australia, NZ, Indonesia, Malaysia, Singapore, Vietnam, the Philippines, Thailand and all the other countries of South East Asia. The rest of the world may be having a long reflective conversation with itself on trade, but the countries at the core of the Asia Pacific region are not. We are doing business.
And long may it continue.