## Willful Ignorance: The Struggle to Convince the Free Trade Skeptics _IMF News, May 18, 2004_ ## Source details **Canonical URL:** [Willful Ignorance: The Struggle to Convince the Free Trade Skeptics](https://www.imf.org/en/news/articles/2015/09/28/04/53/sp051804a) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/sp051804a/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/sp051804a/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/sp051804a/bundle-manifest.json) ## Bibliographic details - Published: May 18, 2004 --- ### Overview and purpose - Address by Anne O. Krueger, Acting Managing Director, International Monetary Fund, delivered to the Graduate Institute of International Studies, Geneva, May 18, 2004. - Purpose: examine why opposition to trade liberalization persists despite theoretical and empirical evidence linking liberalized trade regimes to faster growth, rising living standards, and poverty reduction; explore what policymakers and institutions might do to persuade skeptics. - Emphasis on listening to skeptics, understanding their arguments, and marshaling evidence rather than dismissing concerns. ### Who the skeptics are - Disparate coalition: anti-globalization protesters (concerned with environment, political accountability, big business, etc.), governments—especially in some developing countries—and special interest groups. - Noted historical parallel: debate over the British Corn Laws (1815–1846) illustrating persistent motives (fear and vested interests). - Observed absence of a clearly vocal consumer constituency in favor of liberalization. ### Drivers of opposition - Two principal motives: fear and desire to protect vested interests. - Types of fear identified: - Fear for livelihood (e.g., labor movements fearing job loss or lower wages). - National security concerns (e.g., self-sufficiency in food). - Fear about government revenue loss from customs tariff reduction (historical example: customs revenues nearly 40% of government revenues in 1846). - Vested interests: - Agricultural producers, manufacturers, organized labor, parts of services sector. - Political capture by interest groups can lead governments to favor protection. - Identity bias: - Individuals and groups with identifiable losses (e.g., a town losing a factory) are easier to mobilize politically than diffuse winners (consumers or future workers in expanding export industries). - Political tactics: - Lobbyists deploy plausible-sounding arguments (environment, national defense, solidarity with workers, child labor concerns) to mask protectionist motives. - Misleading statistics and omission of key facts can misdirect well-intentioned advocates. ### Evidence on benefits of free trade - Historical and empirical support: - Postwar era: trade liberalization contributed to rapid and sustained expansion of world trade and growth. - Merchandise exports: about 8% of world GDP in 1950; 19% in 2002. - Warcziarg and Welch study of 133 countries (1950–1988): countries that liberalized enjoyed annual growth rates about one half of one percent higher after liberalization. - Removal of trade barriers during the 1990s raised growth rates by 2.5% a year. - Life expectancy gap between rich and poor countries: 30 years in 1950; around 10 years at the time of the address. - Postwar multilateral institutions and principles (GATT/WTO, most-favored-nation) reinforced progressive liberalization. - World Bank estimate: around two thirds of the benefits of a successful Doha round would accrue to developing countries. ### Costs and distortions from protection - Consumer harm: - Tariff and non-tariff barriers raise prices for consumers; costs can outweigh benefits to protected minorities. - Examples illustrating scale of costs: - Annual support for agriculture and horticulture by 29 OECD members could pay for each of the 56 million cows in the OECD dairy herd to enjoy a first class air ticket around the world and provide each cow $1450 spending money for stopovers; in business class each cow could have $2800 spending money—annually. - Each of the 2,300 jobs saved in the American sugar industry through import barriers in the 1990s is estimated to have cost around $800,000 per year. - The 216 jobs saved by protection for the US benzenoid chemical industry implied almost $1.4 million per year per job. - Producer-level and economy-wide costs: - Protection raises input costs for other domestic producers (e.g., higher steel prices affect automakers). - Protection can disadvantage domestic exporters by increasing costs of protected intermediate goods, enabling foreign competitors to be more competitive. - Developing-country interactions: - Developing country tariff barriers have often been higher against each other than industrial country barriers against the developing world. - One study suggests barriers in other developing countries might account for up to 70 percent of the total tariffs levied on developing countries' industrial exports. - Empirical evaluations often show protection fails to deliver intended outcomes (examples: U.S. auto industry VERs postponed restructuring; textiles and other protected industries did not halt decline). ### Policy implications and institutional responses - Need for better empirical analysis: - Proper ex ante assessments of costs and benefits of protection are often missing; more empirical research on effects of protection can help inform public debate. - Institutional change at national level: - Example: evolution of Australia’s tariff/industry bodies into a Productivity Commission focused on economy-wide effects rather than narrow industry protection. - Strengthen inputs from consumers and industrial users when assessing protection requests. - Multilateral action: - Multilateral liberalization makes governments' tasks easier, allows export-competing industries to form international alliances, and yields higher returns at lower cost than unilateral liberalization. - Doha round stakes: wide range of studies suggest additions to global income ranging from several hundred billion dollars to around one trillion dollars. - IMF role and the Trade Integration Mechanism (TIM): - IMF’s Articles of Agreement: facilitate expansion and balanced growth of international trade to promote high levels of employment and real income. - IMF consistently urges unilateral liberalization while strongly supporting multilateral liberalization (Doha round). - TIM: new initiative to assist countries facing balance of payments difficulties as a result of multilateral trade liberalization; available whether or not country has a Fund-supported program. - TIM designed like an insurance policy: only a very small number of countries likely to need assistance, but its existence aims to reduce policymakers' short-term fears and encourage embrace of Doha. ### Recommendations and strategic messages - Listen to skeptics, engage, and understand their concerns rather than dismissing them. - Use rigorous empirical evidence and economy-wide cost-benefit assessments to counter misleading claims. - Pursue institutional reforms that broaden decision-making inputs (consumers, industrial users) and shift assessments from narrow industry protection to overall economic welfare. - Support multilateral trade liberalization (Doha round) as the most effective way to lock in gains and reduce risk of protectionist backsliding. - Offer credible safety nets (e.g., TIM, compensation financed from gains) so that losers from liberalization can be compensated at far lower cost than the economy-wide losses from protection. ### Conclusion - Free trade is characterized as a win-win: large enough aggregate gains to enable compensation to losers; protection inflicts significant losses for modest and often illusory short-term gains. - Convincing skeptics requires empirical research, institutional change, and narrowing the gap between governments' free-trade rhetoric and practice. - A successful Doha round is presented as the best means to sustain postwar-style gains: reducing the risk of a return to beggar-my-neighbor protectionism, enabling new rapid growth, rising living standards, falling poverty, and helping turn the Millennium Development Goals into achievements. *Address by Anne O. Krueger, Acting Managing Director, International Monetary Fund, To the Graduate Institute of International Studies, Geneva, May 18, 2004.* --- ## References - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp051804a_