Free Trade is Old-Fashion Economic Thought

Globalization and free trade have now become the axiom of countries worldwide. This is because western countries and institutions that promote globalization and free trade, like the World Bank Group (WBG) and the International Monetary Fund (IMF), have been promoting and pushing the idea relentlessly ever since the end of World War II.

Especially after the 1980s, the notion that globalization is inevitable and free trade benefits everyone has been elevated to high status to become the major global economic philosophy.Nowadays, standing against the idea of globalization and free trade is regarded as discarding the natural order. This can be summarized by the words of Robert Zoellick, 11th president of the World Bank and former United States deputy secretary of state, who said “globalization is akin to a force of nature.”

The portrayal of free trade as the holy grail led many to believe it is an inevitable and unstoppable force. Just like many others, I was taught to believe in it while in college. As a student of economics, I was conditioned to think in this way by the works of classical economists such as Adam Smith and David Ricardo who stressed that free trade brings the best results for all, whether the exchange takes place within or between nations.

Currently, the concept of comparative advantage governs international trade. Put forward by David Ricardo, this theory explains how free trade fetches mutual benefit for all involved parties using two imaginary nations with different costs of production. For more than half a century, this laissez-faire approach to economics dominated the world.

Africa also seems to be embracing free trade, with the recently launched African Continental Free Trade Area (AfCFTA) as evidence for this. AfCFTA is intended to drastically reduce tariff barriers for trade amongst African countries and enable the creation of a single market for goods and services.

However, the progress of AfCFTA is far from just expectations. Except Eritrea, all African countries have signed on to the agreement two years ago and AfCFTA was officially launched nine months ago. But only few countries like Ghana, South Africa, and Guinea have started trading under the planet’s newest economic block. On the other hand, more than 30 African nations are still preoccupied by the groundwork, let alone commencing trade under the agreement.

The presence of various threats and challenges is the main reason for the delay. High transport costs as well as poor infrastructure and lofty logistics are the major obstacles. What happened in Ethiopia a while ago might explain how existing poor infrastructure and associated high transport costs could dwarf successes of the newly created trade block.

In 2012, due to a slump in cement demand in the local market, a few cement factories operating in Ethiopia decided to export their products to neighboring countries including South Sudan and Uganda. However, after the first shipment, it became apparent that the strategy was not viable as the price of the exported cement doubled by the time it reached Juba and Kampala, due to poor transport infrastructure that connects east African countries.

Not much has changed in terms of infrastructure development in the region since then. In fact, non-tariff barriers such as poor infrastructure, lofty logistics hurdles, and cumbersome customs procedures are common and remain to be major obstacles to trade across and within the continent.

The other challenge standing against free trade is that most African countries specialize in few primary products and mainly export agricultural commodities, raw materials, and oil. Since the majority of export commodities of African countries are similar, there is no incentive to engage in intra-Africa trade.

After evaluations by taking the above circumstances in to consideration, the much-emphasized belief that free trade is a savior of Africa becomes just a myth intended to serve western countries only. Here, we must ask why African countries are pursuing free trade even if it is not designed to serve their needs.

The first reason for this is that policy makers in Africa are victims of the philosophical thought and teachings of the western world. Even the education curriculum taught in Africa is crafted based on Western viewpoints. As a result, policy makers are less-prepared and less-interested to question the justifications behind free trade and globalization.

However, there is a second reason which is more dominant. It is known that the WBG and IMF—influential shapers of the world’s economic structure —are the most relevant and powerful norm setters in international development. As history has shown, these Bretton Woods institutions—established in 1944—have been instrumental in protecting the political and economic power of the western world.

The outcome of the Structural Adjustment Programs (SAPs), reluctantly adopted by many developing nations in the 1980s and 90s, can shed light on some of the nefarious agenda western nations and the Bretton Woods institutions have in-store for developing regions, in particular Africa.

In the name of promoting free trade, these institutions pushed many developing nations to accept deregulation, privatization, and trade liberalization as a viable policy option. But, the outcome of this economic reform was devastation. In particular, the economic reforms brought catastrophic economic crisis to many African countries.

While westerners managed to accumulate additional wealth by investing and selling their products abroad, developing nations that implemented the SAPs became poorer. In fact, many of these least-developed nations ended up being dependent on the aid and technologies of western nations.

This is not the only time westerners took advantage of poor African nations. Recall that it is through slavery and colonization that western countries managed to amass so much wealth in the first place. Africans must not forget the fact that the large wealth accumulated by the western world through these inhuman means is the main reason for the wealth inequality that currently exists amongst nations.

Ironically, western countries used to claim that slavery and colonization were imposed on Africans for their own good and to spread civilization. The same promotion and explanation apply to globalization and free trade. Although they continually claim free trade benefits everyone, the reality on the ground confirms the opposite.

Apart from the same old rhetoric, no concrete evidence can be found to conclude that free trade reduces poverty and income inequality to benefit all. In fact, many studies indicate income inequality has been rising both within and between countries in the last three decades.

Much of the justification for free trade emerges from narrow thinking and old-fashion classical economic thought. Classical economists stress that for free trade to work properly, there must be perfect competition. However, the vast majority of goods are not produced and traded in anything remotely resembling perfect competition. For instance, most products are currently protected by intellectual property rights, which prevent honest competition.

To support their idea, proponents of free trade argue that it is because of free trade that more job opportunities are created in Africa by foreign investors. Of course, no one doubts that free trade has generated millions of overseas jobs in developing economies. However, since foreign investors mainly come to Africa in search of cheap labor, their wages are barely enough to lift workers out of poverty.

For instance, garment and textile workers in Ethiopia are the least paid in the world at an average wage of USD26 per month, according to a report Made in Ethiopia, published by New York University in 2020. By definition, low-cost labor means a lower standard of living. If the standard of living in a low-labor-cost economy is low, how can anyone say free trade benefits everyone?

We must realize no win-win deal can be made and no mutually beneficial outcome can come out of the existing arrangement. Just like many other exploitive economic systems, the idea of free trade is crafted based on the principle of a win-lose strategy. This means, for some to win others must lose. In other words, Africa must sacrifice its resources, its labor as well as its markets and remain poor in order to make western countries richer.

One striking feature of free trade is that it is the major driving force behind income inequalities even within western countries. The withdrawal of the UK from the European Union and the election of Donald Trump as president of the United States in 2016 are the result of social tension brought on by growing income inequality. This shows that globalization and free trade are not benefiting vast majorities of the globe apart for a very small group of powerful elites.

Why does globalization and free trade only benefit powerful elites? Because most of the time, free trade leads to an inefficient allocation of resources. In the past, we have seen free trade distorting economies and making countries worse-off than they would be in the absence of such trade.

The evidence is clear to anyone who wants to see. The delusion that free trade is mutually beneficial is a false presumption designed to exploit poor nations, especially in Africa. We don’t see globalization and free trade helping Africa’s domestic private sector to grow. Rather, it gives foreign investors a free ride. In addition to access to cheap labor, foreign investors receive duty free privileges, tax cuts, and an entree to huge untapped markets. While westerns take the lion’s share, Africans are left with small bits. By sacrificing so much in the name of free trade, we are condemning current and next generations to fewer good jobs and opportunities, as well as an inferior standard of living.

To be perfectly clear, I am not advocating protectionism. Rather I am saying that we don’t have to accept popular thinking just because of promises of easy success. If we examine closely, many of the rules of free trade contradict with the economic objectives, interests, and policies of African nations. In fact, the system is not built based on inherent values of Africa’s market. And on the other hand, it neglects essential rules of fair competition. So, why should we accept such a system operating based on inconsistent and inharmonious rules?

What African countries need to do at this moment is to put their own economic affairs in order. Currently, macroeconomic problems such as high unemployment, negative balance of payment, and inflation are rampant on the continent. Such undesirable economic settings dwarf productivity as well as export competitiveness. Before confronting the developed world head on, Africa must improve its competitiveness and diversify its export commodities first. Solving these macroeconomic problems primarily requires the adoption of inward-looking strategies that take the interests of each African nation into account. It is only after accomplishing these tasks that African countries can engage in mutually beneficial trade with each other and with the rest of the world.

Related Articles 

African Free Trade Agreement

Free Trade Area

Free Trade’s Diminishing Returns


9th Year • Nov 2021 • No. 101

Samson Hailu

Editor-in-Chief


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