The End of Trade

Guest: Chad Bown, Senior Fellow at the Peterson Institute for International Economics and co-host of the podcast Trade Talks.

Free trade has fallen out of favor – again. With supply chain disruptions linked to one global crisis after another, what is the future of trade?

The term “free trade” has fallen out of favor in recent years. Trade disputes, economic uncertainty and a growing income gap have stoked a global protectionist fire. Nationalist parties across the world have flourished on the coattails of a trade-unfriendly agenda. Latin American leaders regularly run campaigns on “renegotiating” trade agreements. The Trump Administration’s loud anti-trade agenda have proven difficult to reverse. In the last few years, the US left the Trans-Pacific Partnership and saw an average 25% tariff on goods produced in China. What will the world look like with an increasingly protectionist agenda?

This episode’s guest, Chad Bown, is a Senior Fellow at the Peterson Institute for International Economics and joins us to discuss the global state of trade. We’ve witnessed a rise in protectionism around the world. So how does he see the big picture? Bown said, “Free trade falls out of favor quite frequently. I’ve been doing professional trade for close to 25 years and every few years it kind of comes and goes. [It’s important to note though], with the exception of the US under Trump, and the UK during Brexit, the rest of the world has continued to go ahead with normal trade. In many instances, [regions] are actually integrating more deeply. So, I don’t think it’s a uniform story.”

Our guest seems optimistic about trade and globalization. But we were interested in the exceptions, which in fact are two of the world’s most powerful trading nations. Altamar’s Peter Schechter asked about the underlying causes of protectionist trends in the US and the UK.  Bown explained, “there are a number of factors at play clearly. I think in the United States and in the UK domestic politics have played a really big role. President Trump especially was really skilled at playing up the fear of all things foreign. […] The UK had similar stories with fear of migrants and loss of control to Brussels.”

Given what is happening with relations with Russia, our guest explicitly called out concerns in the United States of being overly reliant on China. Bown said, “We’re seeing […], with Russia’s invasion of Ukraine, some of those theoretical concerns about what can happen if you become overly dependent on a certain country that may not necessarily be reliable, stable or have ulterior motives, can come back and bite you. […] We are seeing in real time this play out with respect to Russia and Europe when it comes to energy.”  

Altamar’s Muni Jensen asked about “nearshoring,” the practice of moving supply chain operations to a nearby, Western Hemisphere country, as opposed to more global suppliers.  Our guest said he was largely uncertain about the future nearshoring. Bown explained, “In the United States, we now have [about] 25% tariffs on roughly two-thirds of imports from China. That is going to create economic incentives for some of these supply chains to relocate themselves. But the question […] is that going to be fully broken and more stuff moved to Central-Latin America, or will things just sort of reallocating themselves across East Asia.”

Free trade is based on the idea that even though some people lose, society as a whole benefit from the free exchange of goods and services. We asked about the pros and cons of a wider global free trade system. Bown started with negative effects. “Any change in policy does have distributional implications. We need to be clear about who the winners and losers are going to be. If the losers are large, talk about compensation and other things that we might need to do,” he noted.

Bown continued to explain the positives. “At the moment in the United States, certainly the biggest, biggest, biggest economic issue is inflation, higher prices. Free trade allows access to more goods from abroad, and introduces more competition, which lowers prices. So, if you were to take that away, what would it mean? Well, prices would go up,” he explained.

And then there is the term fair trade, used loosely to denote a supply chain that treats resources and labor “fairly”. “It ultimately boils down to how much more are consumers willing to spend to pay for trade that might have certain attributes,” Bown noted, and elaborated, “We don’t like Russia because they’re, you know, non-democratic, they invade other countries. We don’t want to trade with them. Okay. Well, if it’s going to be, how much are we willing to pay to not like them? If we want to ensure that our goods are being manufactured or something by workers that have the ability to collectively organize into unions. How much are we willing to pay for that? I would like to think that consumers are willing to pay more for these attributes. But also at the same time, I’m not optimistic given how open arms they are at the moment when they’re actually being confronted with rising prices in real time here in the United States.”

Téa Ivanovic asked about the link between rising child labor and trade in her youth and social justice segment on the show. What can we do to combat this in the world of trade? “I think we do have work to do to improve transparency into supply chains. Forcing companies to track this, to set up accounting systems, and auditing systems, to ensure that this doesn’t happen. It doesn’t come for free. It’s going to cost money. Consumers need to be willing to pay for it, but hopefully, they will.”

We ended the interview by looking at a new type of trade deal that does not require Senate approval. Did our guest think that this type of deal is likely to be utilized in the future? Bown said, “The Biden administration loves this new agreement with Mexico and Canada, the USMCA because it has this ability to rapidly enforce labor standards, violations, or concerns in Mexico especially. […] I think in some ideal world, they would want to extend this model to many countries in the rest of the world. Most countries in the rest of the world are not particularly reliant on the United States in the same way that Mexico is. So, I’m not sure we have that kind of leverage. But they’re workshopping the idea out there in this new Indo-Pacific economic framework.”

How will new trade agreements be formed? Will the world continue to globalize? Find out more by listening to the latest Altamar episode, available wherever you get your podcasts. You can download the episode here.