Why big business hates free trade

Economists don’t generally agree on most things, but I have met almost no economists who disagree with one fundamental notion: that trade is a good idea.

Trade was one of humankind’s earliest inventions for a reason. It lets people specialise on a vocation, thereby improving efficiency and creating more jobs. It brings down the price of products and increases consumer choice at the markets. It also fosters innovation by bringing foreign technology and ideas into the domestic market. Between 1990 and 2008, trade ballooned from around 38% of global GDP to over 60%, causing one of the most economically prosperous eras in human history.

To be sure, in any trade, there are winners and losers. When a country opens up to trade, it defaults to doing what it’s best at. If it’s cheaper to grow tomatoes in another country, you will import tomatoes and drive tomato farmers in your own country out of work. But if it’s cheaper to grow apples in your country, you will export apples abroad and create jobs in the apple farms.

On the whole, data shows that even as some jobs are lost, the efficiency gains create many others. The challenge then is one of re-skilling (to teach tomato farmers to grow apples) and redistribution (to get relatively wealthier apple farmers to share their newfound wealth so that tomato farmers can now learn to grow apples).

The populist backlash that one sees against trade is often a result of these failures. When coal miners in an erstwhile mining town ask for their jobs back, they aren’t really saying that they’d love to go haul coal again. In fact, they’re complaining that the skills at their disposal aren’t fitting the available jobs.

With the right political will and leadership, this is generally an easy enough problem to fix. Several economies around the world and across time have adapted and rejigged themselves to fit their niche in global trade – Japan and electronics, or Taiwan and microchips, for instance. As prices go down and jobs go up, poverty falls.

The real losers in a free trade economy are not the masses but somebody else: large monopolistic corporations.

By its very nature, trade tends to drive up competition. By suppressing the input costs on raw materials from abroad, and making foreign technology more readily available, trade makes new entrants and smaller businesses more viable.

That is why big businesses have often railed against free trade all through history. In the 1600s, the English East India Company won a charter from the Queen of England to enjoy a monopoly on all trade between Britain and Asia. Over the next 200 years, it fought aggressively at home and abroad to prevent free trade, deploying some 260,000 soldiers – or twice the British army at the time – towards that effort. In result, from about the mid-1700s to the early 1800s, the company dominated as much as half of all global trade.

Over the last four decades, the world had slowly broken into a more liberal economic order – peaking during the heydays of trade in the 1990s. But if the tariff wars of the Trump era are any sign, the days of big business protectionism might be creeping back. According to one index, a small group of large corporations now controls a bigger share of the US economy than at any time in the last 29 years. These trends of wealth inequality and oligarchic dominance are echoed across Canada, Europe, India, and beyond.

All of this should worry anyone who isn’t a billionaire mogul. The purpose of businesses is to kill competition. The purpose of governments should be to stop them from doing that.