In emerging economies, trade has helped lift millions out of poverty, driving economic growth and technical progress to unprecedented levels. While trade has also lifted incomes in the developed world, rapid industrialisation in poorer countries has left many in the West fearing that competition will erode their high living standards.
Underlying these attitudes is the view that open trade subjects companies to a cruel economic Darwinism, where local businesses are forced to compete with foreign powerhouses with unfair advantages that stem from lax regulations. The country that these dreaded competitors come from has shifted over years to whichever foreign villain is in vogue, from the Japanese in the 1980s to likely the Chinese today.
In European Union countries, the United States is persistently viewed as a predatory rival in this mould, and protectionist policy initiatives have been advanced with varying degrees of success in Brussels on the basis that competing with the US would force the EU to lower its health and safety standards.
It is important to recognise that domestic regulations are impacted by modern trade agreements. As tariffs have been progressively lowered around the world through multilateral and bilateral negotiations, the main barriers to foreign products and services that persist are regulatory in nature. The fear is that, as open trade expands to encompass an ever greater geographical area, countries will be forced to continually lower their health, labour and safety codes in order to compete with each other, negatively impacting employees, consumers and the environment.
Fortunately, such as scenario has rarely occurred in practice. Rather than lowering living standards across the board, trade has more raised the bar, especially in countries most in need of high quality rules and conditions. A key reason for this is that trade-led growth is generally a rising tide that lifts all boats. Greater economic growth coupled with responsible governance increases living standards, wages and demand for better conditions.
South Korea, for example, was poorer than Zambia as recently as 1970 yet, through an export-intensive economic strategy that remains successful to this day, GDP per capita is now comparable to that of Spain. Moreover, South Korea’s remarkable development has allowed it to join the Organisation for Economic Cooperation and Development—a group of countries committed to the highest rules and standards.
More recently, Vietnam has been developing rapidly since opening up to regional and international trade, starting with its membership in the ASEAN Free Trade Area (AFTA). Since joining AFTA, Vietnam’s poverty rate fell from over 50% of the population to around 3% today. Moreover, Vietnam is a signatory to the Trans-Pacific Partnership (TPP) agreement, which—before the United States abruptly pulled out in early 2017 under a new presidential administration—was the largest and most ambitious trade agreement in history, involving 12 countries across North America and the Asia-Pacific regions.
Worker and environmental protections were added in TPP negotiations, and labour rights activists in emerging countries were looking to these protections with hope that the agreement would raise standards at home. It is reasonable to believe that their hopes were not misplaced, as the Vietnamese Government had already begun to draft some of the changes stipulated in the TPP agreement into domestic law.
Beyond incidentally leading to a rise in standards through economic growth though, engaging in international trade can also bring countries closer to setting global norms in other areas. At the 1996 Singapore meeting of the World Trade Organisation (WTO), for instance, member countries committed to upholding a core set of internationally-recognised labour standards, from freedom of association to no discrimination at work (including gender discrimination). Given the immense diversity of traditions and level of development within the WTO membership, this commitment marks a significant step forward.
More generally, trade encourages multilateralism with its emphasis on painstaking yet progressive reforms. Trade brings many poorer countries into the international system and into dialogues and negotiations on a range of issues that aim to close global gaps in living standards. The process may be disappointingly slow at times—as is often the case with diplomacy between countries with varying interests and ideologies—yet it is far preferable than an alternative world where countries are left to out-compete each other with no regard for international norms. That would be a true race to the bottom. More, not less, international rules-based policy-making is needed to ensure quality living standards for people around the world, and trade is part of the solution.