Krueger discusses international trade issues
By Amelia Acosta, The Dartmouth Staff
Published on Friday, August 17, 2012
Combining the logic of political agendas with economic reasoning, economist and Johns Hopkins University professor Anne Krueger discussed the benefits of open trade agreements, as well as the organizations designed to maintain them, in the final installment of the “Leading Voices in U.S. Foreign Policy” lecture series in Moore Auditorium on Thursday.
While the international community is in general consensus that free trade is “desirable as an economic policy in almost all circumstances in the long term,” Krueger said that there is more room for disagreement in the short term, in part due to politicians’ relatively quick terms in office.
“There was once a thriving textile industry in New England, and now that has essentially disappeared,” she said. “Many people blame this change on trade, when in reality it was the fault of economic growth and the fact that the industry moved south. While trade played a part, it certainly wasn’t even half of the story.”
The three institutions that currently play a role in protecting free trade — the International Monetary Fund, the World Bank and the General Agreement on Trade and Tariffs, which now exists as the World Trade Organization — blossomed mainly out of American leadership in the aftermath of World War II, according to Krueger.
“After World War II, I think the United States as a nation did some things in the international arena that were statesman-like to an unprecedented degree, and I’ve always been proud of our trade policy in the immediate aftermath,” she said. “The U.S. led the way in proposing the United Nations and proposing economic institutions for international governance over things that needed international leadership.”
American support for these institutions was especially noteworthy because of the country’s economic dominance during the era, Krueger said. At the time, the United States accounted for 40 percent of global gross domestic product, 30 percent of trade, 80 percent of the world’s foreign exchange reserves in gold and only five percent of the world’s population.
Since its inception, the WTO has worked to ensure that international trading functions smoothly and to push “open, multilateral trading,” Krueger said. While this did not necessarily mean the abolishment of tariffs, it did lead to a push for a continual decrease in quantitative restrictions on imports.
“One of the main benefits of the WTO is that it provided understandings that simplified things for everyone,” she said. “Previously, there were different requirements for the documents that should come with imports on a country-by-country basis, but the WTO has provided uniform customs procedures regardless of where imports come from, making it easier both for exporters and for customs officials.”
The WTO has also helped to create rules on health and safety requirements.
“If there is scientific evidence that something is detrimental to health or safety, then it is perfectly legitimate for a country to prevent its import,” Krueger said. “But without data to back it up, a country can’t just say they think something is dangerous and restrict imports on that basis.”
Krueger also emphasized the beneficial role of the WTO’s dispute settlement mechanism, which has functioned “relatively well” and been used by several countries over the last 60 years. Without this mechanism, she said, several inter-country disputes could have led to trade wars and escalating retaliations.
A final important benefit comes from the WTO’s role in sponsoring multilateral trade negotiations to allow multiple countries to lower their tariffs in concert with one another, Krueger said.
“The average tariff on manufactures among [countries that belong to the Organization for Economic Development and Cooperation] is 3 percent, and there are virtually no quantitative restrictions,” she said. “We have moved very close to free trade in manufactures, and this is the major contributor to the most successful and prosperous 50 years in the history of the world economy.”
Krueger said that since World War II, the U.S. has moved increasingly toward preferential trade agreements, citing the North American Free Trade Agreement which biases the United States toward imports from Canada and Mexico, rather than those from European countries. This is in contrast to the European Union, which has decreased its internal tariffs as well as those with countries outside the E.U. to almost equal rates, according to Krueger.
The shift toward preferential trade agreements comes in part because U.S. leadership in global trade agreements has lagged since the strides of the 1940s and 1950s, Krueger said. In 1994, the Uruguay Round of multilateral trade agreements was completed as dictated by the GATT, which transformed the Agreement into the WTO. The world has since entered into the Doha Development Round, which began in 2001, and its forward progress has stalled in the absence of a strong guiding hand from the United States, according to Krueger.
Krueger said that the Doha Round — the WTO’s latest trade negotiation initiative aimed to lower global trade tariffs — has been stalled because “everyone is sitting around waiting for someone to do something.”
“But that hasn’t happened this time, and other countries are either not prepared or are not understanding of the fact that they no longer have U.S. leadership.,” Krueger said. “Getting back to a completed round would be beneficial for everyone.”
One of the major issues that global trade organizations need to address is agriculture, Krueger said.
“The last food crisis peaked in 2008, when the prices of grains went up and exporting countries like Russia and Argentina started restricting exports to keep the prices to their own consumers low,” she said. “Importing countries began thinking they had to produce more of their own goods, moving agriculture further away from an open trade system and making everyone think they had to support themselves.”
A WTO agreement that stated that exporters would not cut off supplies and importers would not impose protectionist policies over their own resources would be an important step toward addressing global problems with agriculture, according to Krueger.
Krueger emphasized that people should shy away from seeing free trade as the sole reason for unemployment worldwide. Instead, she said that unemployment can be caused by other factors such as a lack of economic growth, environmental change and poor management.
“I have never understood why the cause of unemployment should make a difference on how we treat it,” she said. “Much of the adjustment that comes in the economy is necessary in the sense that one needs to have a whole variety of flexibility in general. What we need is better ways for people who do lose their jobs to redeploy via retraining.”
Krueger’s lecture, titled “Economics and Politics of U.S. Trade Policy,” was the fourth and last Leading Voices lecture offered this summer, which were designed to spotlight foreign policy issues. The lecture series is paired with the government course “America and the World: Contemporary Issues in U.S. Foreign Policy,” in which students study various aspects of U.S. policy abroad.