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G20 Hangzhou Summit: renewed criticism of trade protectionism reinforces misguided debate

Image credit: GovernmentZA (Flickr: Creative Commons)

Last week the G20 met in Hangzhou, China to refocus economic policy and the direction of the global economy. Whilst the meeting has been critically lambasted as ‘short on substance’ and ‘showing irrelevancy’, no one can doubt that the defining characteristic of this year’s G20 summit has been the renewed focus on trade protectionism. As highlighted by Christine Lagarde in her latest IMF blog post before the G20 meeting, a renewed focus on open trade would be crucial for accelerating out of ‘low-growth traps’ as monetary policy, such as already low-interest rates from central banks, was stretching the limits of governmental policy to react to economic growth concerns. However, the most disappointing aspect of the Hangzhou Summit has been the lack of understanding by world leaders as to why protectionism is ‘back in vogue’.

Throughout the two days, Prime Minister Malcolm Turnbull has been one of the most vocal world leaders discussing the problems of protectionism. In various meetings with world leaders, Turnbull has laid out his anti-protectionism arguments in two directions. Firstly, he shifted blame onto scare campaigns generating protectionist mindsets, then pivoted to argue that there was a general lack of understanding by the public over the benefits of free trade. Australian Trade Minister Steven Ciobo took this criticism one step further with a bizarre comparison between protectionism advocates and anti-vaccination advocates. What both these arguments miss, however, is the actual underlying problem facing the global economy: a lacklustre national economic policy response to the impact of trade on national economies. Essentially, world leaders are participating in a misguided debate.

Looking deeper into national economies we find the obvious: trade has ended jobs for many people and people increasingly blame free trade for these outcomes as well as other outcomes like underemployment. David Autor, a labour economist from MIT, believes that Chinese-US trade alone has removed around two million jobs from the US economy. In Australia, the AUS-Korea trade deal has also been criticised as being the ‘final nail in the coffin’ for one of Australia’s oldest manufacturing industries, car production. It is these real consequences of free trade that fuel this misguided debate and also generates ideological overreactions.

The most prominent overreaction to free trade can be seen in arguments from political figures like Donald Trump. Trump is seeking to implement a policy of 35% tariffs on Ford vehicles made in Mexico, and threatening to impose similar tariffs on Apple. Autor highlights where support for Trump’s anti-trade populism comes from. He critically examines that a polarisation is occurring within the US where job losses are extremely concentrated in certain employment groups, thus allowing for people to increasingly seek out far-left or far-right politicians to solve their issues. Unfortunately, this ‘solution’ does not actually solve unemployment/underemployment problems, as President Obama observed when confronting China with tyre tariffs. This raises the question: what is the actual debate we should be having?

To be clear, criticising some outcomes of free trade does not make one ‘anti-free trade’ or ‘protectionist’. Free trade offers many opportunities for economic expansion and is crucial to shift economies from lower skill to high skill and high wage jobs, and from singular industry dependency to a growing-yet-mixed economy of services. The real debate is how governments react from a policy perspective to help people that are impacted either by underemployment/unemployment caused by free trade. From the US perspective, scholars such as Autor and Hilary Hoynes from UC Berkley both highlight the ‘Earned-Income Tax Credit’ as a target area for policy development. Expansion of such a program could be useful to help create a more up-to-date safety net that can adapt to these issues.

From an Australian perspective, whilst the general public has not turned on free trade as harshly as the US has, there is still room for policy change. Christine Lagarde’s IMF blog post made a point to focus on economic policy that aims to re-train workers that are affected by trade unemployment/underemployment. Professor Andrew Beer from the University of South Australia has highlighted the failure of re-training efforts so-far. His research highlights that two-thirds of car industry workers were either unemployed/underemployed for multiple years after job losses. However, one must also be careful to not throw all ‘policy eggs’ into one basket.

A renewed push by Australian governments and opposition parties to refocus Australia into STEM (Science, Technology, Engineering and Mathematics) training/education has faltered. Studies from the Productivity Commission in June and the Grattan Institute in August this year have both been quick to dismiss STEM as some kind of ‘jobs panacea’. The Grattan Institute has shown the jobs market for STEM undergraduates is highly volatile and is providing poor employment outcomes outside a few select degrees. Ultimately, this reinforces the argument for governments to carefully refocus employment policy and move beyond unproductive arguments and debates.

There are issues with free trade, but protectionism and falling into ideological extremism is not the cure-all for these issues. Governments standing still in the policy arena, leaving the general public to fall through the safety net as trade restructures national economies is the real issue.

Charles Bryant is the International Trade and Economy Fellow for Young Australians in International Affairs.

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