IT is said economists rarely agree about either the theory or practice of their chosen subject. Two of them studying the same data may come up with vastly different judgments, since their fundamental philosophy and approach may vary. Some will favour government intervention in monetary and fiscal policy while others will believe in free-market economics.
After the Second World War, the groundwork was laid for a global multilateral system that favoured free trade by establishment of the General Agreement on Tariffs and Trade (GATT), an international organisation designed to formulate and implement agreed rules of international trade and reduce tariffs and other trade barriers. Increasing globalisation and interdependence of countries gradually followed. This resulted in growing integration of trade, finance, people and ideas in one global market place, with free trade, in particular, helping to make globalisation happen. GATT was replaced in 1995 by the World Trade Organisation (WTO) as a permanent international body.
The purpose of free trade is to achieve economic efficiency by lowering or removing tariffs, quotas and other trade barriers. By providing access to higher quality lower priced imported goods, costs to consumers are reduced. Moreover, given that usually a high proportion of imports is for use by a country’s own producers, this stimulates economic activity and, through competition, improves domestic innovation and efficiency. The overall effect, therefore, is higher growth, reduced inflation and greater incentives for foreign investors, while the only beneficiaries of trade restrictions are inefficient and uncompetitive enterprises.
Against this background, President Trump’s much publicised decision to impose tariffs across-the-board on imported steel and aluminium represents a win in the White House for what might be termed economic nationalism. This is hardly in keeping with Republican orthodoxy in favour of free trade as part of capitalism. However, protection of the local steel industry was a centrepiece of his campaign for the presidency; and, more generally, since many countries want access to the huge US market, there is a continuing debate about whether free trade or protectionism is in America’s best interest.
Previous US presidents have applied tariffs and quotas as protection against dumping or subsidised products from specific countries. But Mr. Trump’s tariffs are broader and are claimed to be for reasons of national security which makes it harder for other countries to mount a challenge in the WTO. Critics say that not only will his action fail to revitalise domestic production but it will result in increasing costs of the manufacture of a range of products using steel and aluminium and therefore higher prices for consumers. It will also start a trade war involving retaliatory action that will undermine the global trading system.
As the controversy rages and serious conflict looms between the US and its major trading partners, the subject is of interest to us here in The Bahamas, not least because the issue of our nation’s pending membership of the WTO is in the news again, with the government’s target of 2019 for our accession just over the horizon.
We have recently in these columns congratulated the new FNM government on its strategy to overhaul the nation’s economic model through liberalisation, deregulation and making it easier to do business by means of increased government efficiency and accountability. We need to grow and diversify our economy and the Commercial Enterprises Act is a good start. We have also welcomed the Government’s declared intention to make an “aggressive” push to join other CARICOM countries as a member of the WTO.
It seems now to be broadly accepted that to join is in the nation’s interest because in today’s globalised economy smaller countries need to interact internationally to the fullest degree possible. But we agree the Government should consult more widely with the private sector before establishing its negotiating position. In particular, it must determine the extent to which The Bahamas will be required to open up its economy to foreign goods and services, given there is provision to negotiate concessions and exemptions. There is also the question of tax reform since customs duties are not normally compatible with WTO membership.
The Chamber of Commerce and the Organisation for Responsible Governance have expressed concerns publicly in relation to our WTO accession, mainly because of a lack of information and clarity about the government’s negotiating stance as well as doubts about the time available for domestic businesses to adapt in the face of foreign competition. We urge Ministers to take heed of their comments and address the issues they have raised.
With relatively little time to go, we hope the Bahamas Trade Commission will enter into closer dialogue with the private sector in addition to conducting public meetings.
All concerned need to know how the Government is preparing for WTO membership and be reassured the economic interests of the nation will be protected. So it must be more proactive in keeping people informed – greater transparency and improved consultation should be the name of the game.