Free Trade in A Pessimistic World
Updated: Jul 4, 2022
A World Turning Pessimistic
The years after the cold war have been the age of optimism. Francis Fukuyama famously declared “the end of history” – from now on, all countries will want to be free and democratic. The global tensions were behind us, and the countries could turn their focus away from primarily competing for military power and land. Instead, countries turned their attention to making themselves attractive for investments and economic activity. We established a belief that as long as states are dependent on each other economically, peace will persist. In his article “Foreign Affairs Big Mac,” Thomas L. Friedman makes the rhetorical statement “No two countries that both have a McDonald’s have ever fought a war against each other.”
Friedman’s argument builds on a simple idea: If the working class in one country is strong enough to finance the operation of a McDonald’s, there will be no interest in this country going to war.
Lately, however, the tensions in the world have increased substantially. The United States and China have an ongoing rivalry involving bans and disruptions of supply chains, and Russia has invaded Ukraine. Although McDonald’s is now retreating from Russia, it is more apparent than ever that such an argument can no longer hold. A working class with decent buying power cannot alone prevent a war. It seems like we have been a tad too optimistic.
Consequently, we see that the world is moving away from free trade. China is increasing its control over tech companies, the EU is reducing trade with Russia, and Biden follows Trump’s mantra of putting America first. A mercantilist wave is on the rise. Governments seem to have reobtained the impression that trade is a zero-sum game – there is a loser for every winner. Even in Britain, where Thatcher’s laissez-faire notion still echoes, we see a strong tendency towards a protectionist attitude.
Adam Smith is well known for his love of free trade and opposition to mercantilism. However, even Adam Smith was, in his time, in favor of Britain using protectionist trade policies to keep their impressive fleet of ships. Although he admitted this protectionist policy was damaging in economic terms, he held the argument of having a good supply of ships higher.
Arguably, the current case of Germany is not all too different from Smith’s ship example. Due to a free trade policy, Germany eventually grew utterly dependent on imports of Russian gas. We see an example of how the uncritical optimism on free trade and continued peace eventually ended up making enormous issues.
A Question of Generations
As we have seen, there are solid reasons why we may claim that our parents have been much more spoiled than ourselves. Considering the opportunities our parent generation was given, their results have been terrible. They have run trade policies based on Fukuyama’s argument that all countries want to be like us, which today seems borderline naïve.
Our generation has grown up in a completely different world than our parents. The “end of history” argument from Fukuyama makes little sense to us. We have not seen the end of the cold war, but we have seen the terror in Europe. Not least, we have seen China and Russia evolve to be decreasingly free and democratic. We do not share our parents’ optimism because, frankly, why would we? To us, it seems unrealistic that authoritarian leaders like Putin will respond to anything other than the use of power.
So, Where Does This Put Us?
I am a strong supporter of relatively free trade. When I’m saying that our generation is rightfully more pessimistic, this is not a proposal of mercantilism. It is a realization that our parents’ blind optimism seems naïve at best, and that we should strive towards a more realistic worldview. Not all countries want to be free and democratic. A country may attack us although it has a McDonald’s. Naturally, such a realization calls for caution. It does not mean free trade is bad, but it must not be done blindly.
We must remember that authoritarian states may not necessarily want to be free and democratic, and that trading with them will impose a certain risk.
Ukraine wants to be free and democratic, however. Therefore, they have been striving to improve their connections to the west. Their wishes are now under attack, and we must protect them. Here we meet the big dilemma of the future of trade. The most effective tool to do so seems to be with restrictions on trade with Russia, but this would not be possible if we were not trading with them.
We must, in the future, balance these two ways of looking at a trade. Although punishing Russia by reducing trade is a nice option to have, this must not put access to food and energy for our people at risk. Adam Smith argued that some causes must prevail over the economic terms of free trade, and unfortunately, the governing bodies seemed to have forgotten this part of Smith’s work.