The public’s mixed views on free trade

The latest Lowy Institute poll on Australia and the world shows some now familiar patterns of belief on free trade. As I argued in Policy some years ago, while the Australian public remains protectionist, this does not mean they fail completely to understand the arguments for free trade.

For example, 72% of respondents to Lowy’s poll agreed that freer trade ‘leads to lower prices and more product choices for consumers’. 67% agreed that freer trade ‘helps to increase prosperity, both in Australia and other parts of the world’. 84% agree that it ‘enables Australian business to open new markets for Australian products’. On all these propositions, public and expert opinion is close. There is even majority support for the social and political benefits of free trade, with 64% agreeing that it ‘makes the world more stable by putting people from different countries in contact with each other’.

Yet when it comes to a specific question on a free trade agreement with China, only 38% say that on balance such an agreement would be good. Why? The answers to some of the other questions on free trade give us some clues. 68% of Lowy’s respondents believe that freer trade ‘puts Australia at a disadvantage because of our high labour and environmental standards’. 50% agree that freer trade ‘costs more Australian jobs than it creates’ and that it ‘leads to more economic and social inequality’. 42% think that freer trade ‘leads to lower quality jobs in Australia’.

People are more in favour (47%) of a free trade agreement with Japan than China. I think this parallels initial reasonably strong support for a US-Australia FTA – that Japan, like the US, is not seen a low-cost manufacturing competitor (these days ‘Made in Japan’ is a mark of quality; it used to mean what ‘Made in China’ means today, ie cheap). Support for FTAs, though short of majorities, is always well above questions that assume unilateral tariff cuts – the idea that Australia is getting something in return helps increase public support – which is probably why the largest favourable response in the Lowy survey is on opening markets for Australian business.

Many economists think that even unilateral tariff cuts are better than maintaining protection. But to carry public opinon, reducing protection through international agreements is the way to go.

69 thoughts on “The public’s mixed views on free trade

  1. Alan’s gone off to buy that sombrero he always wanted before it got too expensive because of the exchange rate.

    Russell has been trying on and sniffing Chinese socks all day and got arrested in a clothes shop as a consequence.

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  2. Sorry for the time difference. JC if you really don’t understand the connection between loose monetary policy and free trade then you have a lot of reading to do. With limited free trade one has maintain some semblance of self reliance. With crazy full blown no tariffs at all free trade you have the option of going way into debt as a nation and letting other countries bail you out. I know you’re going to say that’s the only way a China or Japan can get their factories going is by eating US over printed money. I doubt that. Maybe normal growth would have taken a bit longer but then we wouldn’t be on the brink of financial chaos.

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  3. David,

    Can you point to any research to back up your theory of “With crazy full blown no tariffs at all free trade you have the option of going way into debt as a nation and letting other countries bail you out”?

    In comment #44 you talked about ‘free trade in moderation’. Can you tell us exactly what the difference is between ‘free trade in moderation’ and ‘crazy full blown no tariffs at all free trade’ – for example, what goods would you exclude from free trade under the ‘moderation’ regime?

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  4. Jeremy you can see this Wikipedia entry and notice that the end of the tariff in America (see period 1980s to present) was also the, if you look at any chart of our trade deficit, the beginning of insane levels of foreign debt. The reason is simple – with commodities kept at some comparable level you have no incentive to take out a huge loan to pay for something from another country. I’m not going to bother Googling for research for you because the onus of proof is on the people who have decided tariffs no longer play ANY role. Its a bit like cutting the brake line on my car and then, after a great speed up that you approve of, asking me if I have any research that proves driving with brakes is safer.
    Same thing on ‘free trade in moderation’ – this was the system for hundreds of years. Its up to you to explain how the absolutely no tariff system is supposed to work.

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  5. David

    Why is foreign debt such a big problem in of itself. I would say that the big problem doesn’t belong to the US, the problem resides with those owning the debt.

    The US is essentially exporting dollars overseas in the form of securities. The US consumer receive all sorts of goodies in excahnge for their dollars. That’s agood deal as far as I’m concerned. If the foreigners want to sell their dollars, no problem.

    ———————–

    “if you really don’t understand the connection between loose monetary policy and free trade then you have a lot of reading to do. ”

    I do. But why is mutual exchange through free trade the blame for loose monetary policy. Go ask the Fed to stop printing too much money. Don’t blame free trade for the monetary mess that Uncle Al and Helicopter Ben are creating.

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  6. David

    It is not up to us to prove free trade works. It’s really up to you to show clearly why the points we have made are refutable and why tariffs are a good thing. There is 200 years of economic debate that makes it almost axiomatic.

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  7. JC

    These last two posts are just childish. Foreign debt is a problem for the same reason that any debt is a problem – your creditors may take action if you try to default ie monetize the debt. In this case the US absolutely no ability to pay back China and Japan for the masses of dollars they have accrued. Admittedly China and Japan don’t have many options available to them except, oh let’s see, take down the entire idiotic globalism financial system.

    As for axiomatic I don’t think you understand what the word means. No amount of debate can make something axiomatic. If there is 200 years of debate about having NO tariffs AT ALL then it only proves that NO tariffs AT ALL is definitely not self-evident.

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  8. JC: nice line on the sombreros!

    David,

    You are making the same mistake as Alan, I think: you are attributing to one cause an effect which can be better attributed to another cause.

    Many commentators (such as the excellent Martin Wolf in the Financial Times) attribute the causes of the trade deficit and increasing US debt to East Asian mercantilism. By discouraging imports and encouraging exports (mostly through currency manipulation), these countries have caused the problems that you identify.

    Your argument about the prices of commodities doesn’t really hold water: if tariffs are cut, the prices of commodities should fall, giving people more income to spend on other goods and thus discouraging borrowing, not encouraging it. N’est-ce pas?

    I asked you for supporting research, not so much because I want to check the arguments, but because I want to see where you are getting your ideas from. I suspect that you are coming up with them yourself, and not subjecting them to critical analysis.

    Maybe now you might want to tell us what the difference is between ‘crazy full blown no tariffs at all free trade’ and ‘moderate free trade’? What about banning trade in sombreros – would that make a difference?

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  9. I’m sorry, I should have also mentioned that the East Asian countries cause increased debt in the US by recylcing the money from their trade surpluses into US investments.

    I’ll be going away for a few days, and so won’t be able to follow the debate, but will be interested to read the (any?) replies when I return.

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  10. Foreign debt is a problem for the same reason that any debt is a problem

    Oh sheer nonsense. Debt only becomes a problem if you can’t service it. The US is nowhere near that. In fact foreign debt is about 28% of GDP. It was much higher than that after WW2 when it was 45% of GDP.

    —————-

    – your creditors may take action if you try to default ie monetize the debt. In this case the US absolutely no ability to pay back China and Japan for the masses of dollars they have accrued. Admittedly China and Japan don’t have many options available to them except, oh let’s see, take down the entire idiotic globalism financial system.

    What action would they take? Sell the securities they hold en masse. Well that would be fine and dandy as they would end up with 20 cens in the dollar.

    For every selller there has to be a buyer. If they flooded the market with US debt they would crucify themselves.

    Not only that, but their export machines would grind to a halt.

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  11. Jeremy: You are vacillating between national debt and individual debt. I am consistently only referring to national debt. So when I say that cheaper than locally available commodities encourage debt I mean national debt. That is America sees the ridiculously cheap item in the Chinese store front window it nationally goes into debt to buy it. (Individual debt is the one that easier to squirm out of as long as all of the debt is held within the country.) As to the cause of the debt I did not specify. I only said that tariffs would have helped prevent this debt not that lack of them caused the debt. Lack of brakes on a car don’t cause the car to crash – that was a result of acceleration towards something immovable – but brakes do help prevent a crash. Saying that China caused the problem though is just silly. Its up to America to protect itself not rely on China to behave correctly.

    As to my own research that’s just silly; like I invented the current world economic snafu. Here read any of the books that your Martin Wolf is reviewing – http://www.ft.com/cms/s/0/da491b56-34fd-11dc-bb16-0000779fd2ac.html and see if you can parse his response as anything more than back pedaling:

    South Korea and Taiwan were exceptional cases. The argument that success will follow the overthrow of the neo-liberal consensus and the return of protection is nonsense. But the authors are right that those who argued that free trade alone is the answer were wrong. There are no magic potions for development. Developmental states can work. Many fail. But some may succeed.

    Above all, developing countries should be allowed to try, and so learn from their own mistakes. Countries should be warned of the difficulties of following South Korea’s example, but allowed to do so if they wish.

    Big and relatively successful developing countries, such as China and India, must participate in and be bound by global rules. They cannot be free riders. But the bulk of developing countries should be allowed to choose their own policies. Almost all will need to attract inward foreign direct investment. A few might still manage without it.

    Chang is right that some of the constraints imposed upon developing countries, notably on intellectual property, are unconscionable. Most should enjoy the benefit of open markets from the rich, but be allowed to pursue their own paths, from laissez-faire to its opposite. They will make many mistakes. So be it. That is what sovereignty means.

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  12. JC,

    Link.

    The US current account deficit reached $850–875 billion in 2006. It has exceeded annual rates of $900 billion in a couple of recent quarters, including the latest for which full data are available (the third quarter of 2006). It now accounts for about 7 percent of GDP, more than double the previous modern record of 3.4 percent in the middle 1980s (as a result of which the dollar dropped by 50 percent against the other major currencies over the three-year period 1985–87).

    Our external deficit has risen by an average of $100 billion annually over the past four years. It has climbed by an annual average of $80 billion for the past nine years. The trajectory, as well as the level of the imbalances, is clearly unsustainable.

    When you say China won’t do anything to upset the current world order you maybe right for a time. After all currently the China is still able to spend some of those dollars it receives. If America would get off of oil and maybe even sell some oil to China perhaps some compromise is still possible. But without some change of course by the US the status quo is definitely not even short term, 5 years, sustainable.

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  13. David

    The US has been running a trade deficit for the past 27 years. It’s a brave man who argues about it being unsustainable. In fact the US has run a trade deficit for most of its life.

    The other side of this equation is that those running a trade surplus are unable to maximize returns on investment and so have to look elsewhere where they can get a good return.

    The only real problem we have over the next few years trying to entice China to get of the fixed rate and allow its currency to float.

    However I would not be at all certain that China’s liberalization would mean an appreciation of the exchange rate. There could well be a sudden exodus of money leaving China thereby proving all the pundits wrong about the Yuan’s expected appreciation.

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  14. The low to zero tariff regime in Sweden gave them a vibrant, export-oriented economy that created the wealth to support cradle to grave welfare, if you like that sort of thing.

    Japan went into recession on account of economic irrationalism, not the reverse. People like Robert Manne thought we should have copied the “Japanese miracle” of state managed “industry policy” but they spoke on the eve of the recession and he has been less outspoken on that line lately.

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  15. JC,

    You are right that the US has had a long run of financial stability. And without such an absurd level of global interconnectivity the stability would have continued a long long time. But now the US and much of the world is entwined with China which is famously unstable. The typical end for Chinese regime creating this kind of inequality – is bloodshed. I would say it is the brave man that relies on Chinese stability for his world order… You maybe were thinking of Japan but I can assure you that China is no Japan.

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  16. You are obviously right in your speech. Free trade achieves maximum economic efficiency and overall productivity gains It does not restrict its volunteers in their free will to advance their product It keep them out from taxes and other legislation, such as tariff and non-tariff trade barriers.

    Armand Rousso

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