Analysis
Wellbeing Statement 1:
What interesting survey responses from our Panel of Economics of Wellbeing aficionados. All but one of the twenty-eight respondents agreed or completely agreed with Wellbeing Statement No. 1: “
Increased trade between countries in the last 80 years has on balance improved the wellbeing of humanity”. Here is a summary of their detailed and extensive arguments.
(The responses to this survey were well-considered and detailed, perhaps due to the salience of current international trade tariff activity. This report attempts to capture the main points raised by each respondent but not the passion in their responses. To experience that, readers are referred to the detailed responses from each panel member at the World Wellbeing Panel website.)
Supported by an enormous body of research (Bruno Frey), a common theme that emerged from panellist’s responses was the normative macro-economic argument(s) that international trade has generally allowed economies to flourish in part because of greater interdependence among market participants (William Tov). International trade reduces input to production costs which leads to production efficiencies and the lowering of prices for goods and services (Kelsey O’Connor; Fengyu Wu). This has motivated the emergence of global supply chains, something that is under threat in light of the US Administration’s implementation of global tariffs (William Tov). As Adam Smith argued, it has also allowed for specialisation by individuals, which enhances their material prosperity and thence their wellbeing (Arthur Grimes).
In spite of Trumpian-induced market distortions (Darma Mahadea), trade-participating countries will still get to exercise their comparative advantage (Marten Hendriks; Mario Pugno), leading to improved wellbeing from increased economic opportunities at home and abroad; resulting increases in consumption/investment/GDP leading to economic growth (Martijn Burger; Gigi Foster; Harrison & McMillan 2007, J Econ Ineq). Felix Cheung suggests there has been too much focus on individual wellbeing and not enough on this macro perspective that considers high unemployment rates, affordable goods, increased international trade or imported inflation (Martijn Burger). Tony Beatton suggests the country or regional-level wellbeing consideration could go beyond macro effects to also consider the wellbeing expectations and needs of cultural groups.
Since World War II international cooperation and trade interdependence has helped to reduce global conflict (Gigi Foster) and facilitated peace (Chris Barrington-Leigh). Kelsey O’Connor argues resulting international peace has facilitated democracy, reduced resource-driven conflicts (Marten Hendriks), increased human rights and personal safety (see Steven Pinker's Enlightenment Now, or the OECD's How Was Life Reports), and consumer welfare (Giulia Slater); all contribute to wellbeing. International trade has increased the wellbeing of individuals in poorer countries: improving objective well-being indicators (Marten Hendriks) like life expectancy (Mark Wooden); increasing Happiness-Adjusted Life Years (a measure attributed to Ruut Veenhoven; Heizer, 2017, World Economy; Dithmer & Abdulai, 2020, Applied Econ; Feng et al., 2021, World Development); reducing child mortality (Eugenio Proto) and poverty rates (Kelsey O’Connor; Dollar & Kraay 2004, Econ J; Bergh & Nilsson 2014, World Dev); providing access to ideas (Chris Barrington-Leigh) and technology thereby increasing innovation (Lina Martinez). The result is better access to vital natural resources (Marten Hendriks), better quality food, modern vaccines and medicines (Aaron Jarden), and cheaper prices for commodities like rice, wheat and oil. A well-fed human who has fuel to cook is a happier one.
Panelists also addressed negative outcomes associated with trade. International trade has also provided labour market opportunities for the educated from poorer countries to move to higher paid jobs in richer countries (Gigi Foster; Mark Wooden; Dorn et al 2022, Econ Inq). Tony Beatton suggests a resultant “brain-drain” may have enriched wealthy countries like the USA at the expense of poorer nations (Mark Wooden). This can reduce the availability and quality of important wellbeing-increasing services in poorer countries, services like healthcare, which rely on a high level of home country human capital; educated doctors and nurses. And fickle international aid policies by countries like the USA in no way compensate these poorer countries for what rich countries have taken from them. Andreas Knabe suggests that if countries have appropriate redistributive tax-and-transfer systems and social protection schemes, this ensures that international trade has, on balance, positive effects for the home or foreign populations.
Ada Ferrier-i-Carbonell reminds us of how post-world-war II global institutions like the WTO have: increased fairness in trade; encouraged interaction between countries & across regions, and; contributed to global political and economic stability. Free trade based upon GATT (Talita Greyling) and WTO compliance is better for citizens’ wellbeing in both producing and consuming countries (Darma Mahadea). In his 2014 book “World Order” Henry Kissinger questioned whether such global trade cooperation would continue. He called for a global leadership based upon virtue, trust, compassion and cooperation to stand up to demagoguery; one wonders whether the current crop of country leaders read Henry’s book and how their recent tariff behaviour has affected global trade.
Mariano Rojas asserts that globalization has not emerged in a political vacuum. Its design and trajectory reflect global power asymmetries and have primarily served the interests of dominant actors. Not only affluent nations, but also influential economic and political elites within them (Philip Morrison). Consequently, while globalization may contribute to some undeniable benefits, such as reductions in hunger and child mortality through enhanced productivity, these outcomes were not the principal motivations for global trade expansion. As history reveals, including during the post-colonial era (Talita Greyling), the driving motivations behind globalization have rarely centred on advancing wellbeing.
In comparing the emergence of global trade and its differences between Asia and the European Union, Mark Fabian reasons why trade is no longer an unalloyed, pure, good. In Asia trade flows according to economic textbooks and he argues this is why Asian trade is a well-oiled machine offering many wellbeing-related benefits. It has played an important role in lifting China, Japan, Korea, India, and much of Southeast Asia out of poverty (Conal Smith; Dollar and Kraay, 2004). Mark states, Atlantic trade is much clumsier with fewer wellbeing benefits: “The US consistently makes its trade strategy subservient to its grand strategy”. The EU works as a bloc, restricting more than facilitating trade. As a result, Atlantic trade agreements often amount to two outside powers squeezing everything they can from much smaller players: global bullying. Taking advantage of other countries often backfires and harms everyone involved (Mohsen Joshanloo). Countries like the USA have been particularly bad at channelling trade gains from winners to compensate losers, especially when it comes to education, health care, pensions, and public transport infrastructure; all wellbeing increasing. The 'potential pareto improvements' from trade are thus squandered. Both within and between countries, David Blanchflower asserts that “the winners (from global trade) should have compensated the losers more than they did”. Perhaps the lack of redistribution of wealth and widening of the rich-poor gap is why life expectancy and wellbeing in the USA is lower than similarly developed countries (Tony Beatton).
Mariano Rojas reminds us that “the higher incomes that can emerge from global trade do not automatically translate into improved life satisfaction (Easterlin 1974), particularly when accompanied by rising material aspirations, whether endogenously generated or exogenously promoted. He argues, economic growth can entail significant social and environmental costs: weakening of interpersonal relationships, erosion of social cohesion, create climate change and environmental issues, and the dismantling of state-supported safety nets (Philip Morrison).
Gigi Foster argues that Multinational Corporations (MNCs) may have contributed to the problem, distorting the benefits from trade through the use of revenue and tax avoidance measures and anti-social behaviour like transfer pricing and avoidance of environmental standards. In the absence of recognition nor compliance with International Law(s), MNCs can obstruct the free movement of international labour through worker non-compete agreements and the siphoning of specialised skills, like information technology and biomedical engineering, into their rich home countries (e.g. USA). Similarly, countries like the USA, Australia and trading blocs like the European Union use the power of their (anti) immigration laws to eliminate job opportunities for poor South Americans, Africans and Asians, while arguing these policies protect the (high paid) jobs and improve the wellbeing of their ‘own’ citizens.
In spite of immigration laws restricting the free movement of labour, the globalization of trade has created rustbelts in some countries; Chicago and Pennsylvania are mere shadows of their former industrial grandness (Marten Hendriks). However, one could argue that with global competition comes creative destruction and the emergence of new technologies, new industrial opportunities (Tony Beatton). The manufacturing that was once a major portion of many countries’ economy has disappeared or been deliberately moved offshore by MNCs seeking cheaper labour or relaxed environmental restrictions (Lina Martinez). Some countries have fared better than others. For example, the almost complete demise of manufacturing in Australia has not resulted in what we see in the USA. Perhaps the economic and social policies of successive Governments, and MNCs, need to better consider the long-term goals, like China, instead of engaging in short-term shareholder mentality that focusses on next quarter’s revenue and profit numbers (USA).
Along a similar line of thought, Guilia Slater states “we should also consider within-country inequality. While trade has increased overall aggregate income, industries exposed to foreign competition could face job losses, wage pressures, and lower income for workers. Moreover, productivity gains tend to favour those with access to capital and skilled labour in the industries of the abundant factor of production in a country, while others are left worse off. Trade can also intensify regional disparities by concentrating economic activity in already advantaged locations, unless offset by redistribution and investment policies.”
Mario Pugno offers a more equilibrium-like and cooperative view of a global trading world. He cites Rordik (2024) who says: “it is possible to envisage a more sensible, less intrusive model of economic globalization that focuses on areas where international cooperation truly pays off: global public health, international environmental agreements, global tax havens and other beggar-thy-neighbor policies”. Mario argues this approach otherwise leaves nations unencumbered to prioritize their economic and social problems at home. Such a global order would not be inimical to the expansion of world trade and investment. It might even facilitate it insofar as it opens space for restoring domestic social bargains in the advanced economies and crafting appropriate growth strategies in the developing world. Perhaps such a cooperative world is what Henry Kissinger had in mind when he called for virtue, trust, compassion and cooperation?
Chris Barrigton-Leigh offers a completely different perspective on global trade and wellbeing. “We have recently found communities around the world with relatively weak dependence on the market who nevertheless report very high life satisfaction (DOI:10.1073/pnas.2311703121), so we should keep some humility when making claims about very different counterfactual worlds.”
So, perhaps Paul Frijters’ five-point argument in favour of global trade is more relevant to its “rich” but perhaps not so happy participants:
- People who trade have an incentive to be polite to each other.
- Trade reduces wars and criminality.
- The production of goods to trade similarly enforces stability and predictability on a region.
- The regions that do not do this see its population move elsewhere.
- Less wars, less crime, and more stability all strongly improve human wellbeing.
Wellbeing Statement 2
As can be seen above, the panel had a preference for eliminating tariffs and other barriers to free trade. Therefore, one could reasonably expect that our wellbeing focussed respondents would disagree or completely disagree with Wellbeing Statement No. 2: “Imposition of tariffs on some products can improve national wellbeing in your country”. Not so, the panel was split: Agree (6); Completely Agree (7); Disagree (9), and; Neither Agree nor Disagree (6). Their wellbeing-focussed reasoning is country-centric, case-based and interesting.
Chris Barrington-Leigh offers a theory-destroying story of his International Trade Professor who stated when introducing trade models on imperfect competition and economies of scale: “most of this theoretical work was done to further a political agenda in the late 1970s and early 1980s,” i.e., to tweak models to show bigger economic gains from freer trade. Is it all about economic gains? Guilia Slater reminds us that “from a political economy perspective, tariff escalation and retaliation (tariff wars) erode international trust, increase geopolitical tensions, and weaken institutions designed to allow cooperation and controlled trade, undermining economic stability and international cooperation”.
Gigi goes beyond political intervention to state that nationalism and country-specific-needs justify market intervention; particularly if tariffs are imposed “against unfriendly nations”. Her ideas are founded upon "we Australians won't be pushed around" or "we believe in Australian know-how …. all help to build a national unity, confidence, and purpose, and to remind us of what we stand for”. Mario Pugno suggests Italy, or rather Europe, could benefit from tariffs for reasons of national security and public health. All very nationalistic, an anti-cooperative behaviour Henry Kissinger might consider as anti-global and anti-free-trade (Tony Beatton). Felix Cheung agrees: ”tariffs are less likely to work if they are politically motivated”.
Kelsey O’Connor offers a prescription for industrial policy that supports local industry over the short-term in order to provide the foundation for strategically selected domestic industries that a country seeks to grow into global supplier status. Short term market interventions that improve domestic investment, employment, develop new technologies, products and services. They might also consider urban design, inclusive municipal programs and the teaching of socio-economic skills at all level of education (Mariano Rojas). Such strategies could help to immunise local economies from global supply chain disruption, particularly important for healthcare, defence and other essential products and services. Kelsey suggests that tariffs are the least preferable mechanism to achieve the above, better we use taxes, subsidies, or preferably, international cooperation. Mariano Rojas adds his voice to the need for international cooperation and respect, particularly as international trade has never really focussed on wellbeing.
Mark Wooden offers an interesting perspective on international cooperation from a free trade nation. “..the biggest problem with tariffs for countries like Australia, which rely heavily on its mining and agriculture export revenues, is the likelihood of retaliatory behaviour by our trading partners. A trade war has the effect of leading to the reallocation of resources from the most efficient competitive sectors of the economy to less efficient sectors that are unable to compete in world markets. Export revenues decline and overall economic output / growth (GDP per head) suffer as a result.” Willian Tov echoes Mark’s concern for “blowbacks and retaliation”; tariff behaviour increases uncertainty and anxiety in both the home and foreign populations, thereby reducing their wellbeing.
Martijn Burger suggests tariffs should be considered in the short term (Philip Morrison) when seeking to avoid social polarisation by reducing inequality. They could be teamed with labour market policies that target wellbeing improvements for specific groups. For example, retraining, geographic location assistance to replacement jobs or redevelopment of old industries. An example would be the initiative to replace coal-based steel production in Australia with hydrogen; steel jobs remain, and solar and hydrogen creates new jobs that, hopefully, persist over the long term; the short term economic and wellbeing issue here is a resultant increase in the cost of energy for households (Tony Beatton). Chris Barrington-Leigh examples the egg supply management system which includes import restrictions that may raise average prices but give Canadians stability, security, and safety; all wellbeing increasing. Talita Greyling provides a South African example: “South Africa imposes tariffs to protect vulnerable and labour-intensive industries, such as agriculture, clothing, and automotive manufacturing. These tariffs support economic security, stimulate local value chains, and increase community resilience, thereby contributing to overall well-being”. Arthur Grimes disagrees: “Imposition of selective tariffs (even if they could be justified by someone's general equilibrium model) is beset with corruption and rent-seeking so harms the majority of a country's population while weakening standards of transparency and good governance”.
Paul Frijters picks up on the earlier suggestion for cultural consideration. “Whilst in general tariffs reduce trade and are a bad thing for national wellbeing, the maintenance of cultural distinctiveness and own independent information streams is probably helped by barriers to external entertainment and political interference. One of the instruments for national cultural independence is tariffs on foreign entertainment and the output of foreign non-profit organisations. Cultural distinctiveness in turn can increase national confidence and give populations some self-belief, which is an element in national wellbeing.” Eugenio Proto suggests such policies can increase the wellbeing of a specific group at the expense of a larger group.
Martijn Hendriks supports tariffs to protect against unfair competition, like “heavily subsidised electric vehicles from China”. The issue here is how does one define “unfair”. He suggests tariffs should be used as a defence against foreign companies undercutting national firms to gain market dominance. This strategy certainly did not work for half a century in Australia’s motor vehicle industry. The tariffs subsidised the profits of uncompetitive foreign Multi National Corporations (MNCs) and delivered consumers substandard over-priced products (Tony Beatton; Mark Wooden); Australians prefer cheap Chinese cars. They vote to spend their tax-payer dollar on infrastructure, healthcare and other wellbeing increasing public goods (Tony Beatton).
Ada Ferrier-i-Carbonell echoes that tariffs should be used to protect local industry from social or environmental dumping from third countries, but they should be used to minimise transporting goods around the world so as to reduce energy consumption and mitigate climate change. Tariffs should be tailored to products that on balance are likely to be wellbeing detractors, like luxury cars (Gigi Foster). While current tariffs do not seem to consider the harm or benefits of the goods (Aaron Jarden), tariffing "bads" (Conal Smith) like cigarettes at the border could make sense if they are made abroad (Chris Barrington-Leigh). This raises an interesting wellbeing question(s): would such tariffs offset their wellbeing-related negative externalities? Darma Mahadea asks: “Who decides on which products tariffs are to be imposed? “