Blog: Dave LeggettThoughts on international trade

Dave Leggett | 11 December 2003

What is free trade between countries? I’ll tell you what it is – a great big can of worms. If I cast my mind back to the Cambrian period when I was an economics undergraduate, I seem to remember that there are simple laws of comparative advantage that mean bilateral trade can be beneficial to both parties. It’s win-win. Markets functioning to the betterment of all and let’s say a big thank you to Adam Smith.

But it is not quite that simple when you look at today’s global economy. There are other elements to consider in myriad trading equations. How are the goods being produced? Are there overt/covert subsidies and/or tariffs or other protectionist measures (e.g. Proton in Malaysia, but it is losing that protection now and therefore going out of business)? Are workers being ‘exploited’ (now that is a difficult one because we have to accept that Western standards cannot instantly apply everywhere)? Health and safety? I recall a visit to a car making company in China when I saw workers’ arms going under stamping presses to handle the stampings – scary.

Maybe the real horrors are to be found elsewhere in the supply chain – raw materials and intermediate goods.

But the Third World looks at the First and cries foul whenever Western politicians make noises like that. It is interpreted as a smokescreen for protectionism. I wouldn’t fancy being at the WTO and trying to come up with consensus ‘rules’ for international trade, never mind enforcing them – which must be a nightmare.

And then there are the social questions – a ‘way of life’ to protect. If a steel mill closes, what does that mean for the local economy and community? For an economy such as Britain’s does it matter if heavy industry migrates to lower cost places around the world? Maybe not if there’s a clear strategy to replace the jobs and activities lost with other things (preferably high value-added). Everything changes after all.

But there are uncomfortable questions like these surrounding free and fair trade that make it a big can of worms. And companies – like Ford with its current charge into China for cheap parts – are under pressure to get the lowest cost inputs. Period (assuming quality is okay). How does a universal parts supplier in deepest Mid-West US or northern Europe compete with much lower cost suppliers in China or India? The OEMs will be increasingly dipping their toes into that international parts pool, so these issues will only get more pressing.


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