Trade policy: a call for solidarity

The age of unbridled free trade is rightfully over. Solidarity should be the new Leitmotif of trade policy.

Over three decades of global economic development based on the ‘Washington consensus’ present a sobering picture. Unbridled free trade, market liberalisation, privatisation and labour-market deregulation, combined with fiscal austerity and cuts in social programmes, have wrought major structural distortions.

We are now on the cusp of a new era, its contours hoving into view. Three paradoxes highlight the challenges we face.

More trade does not mean more democracy: the notion of Wandel durch Handel (change through trade) has not stood the test of time. In liberal democracies, hyperglobalisation has primarily benefited the super-rich. They have utilised their rapidly increasing wealth not just for extravagant and environmentally harmful luxury consumption but also to gain greater political influence, often at the expense of policies that prioritise the needs of the broader population.

In contrast, the working class in member states of the Organisation for Economic Co-operation and Development has experienced declining incomes and wealth. Stagnant wages result from relocation of low-skilled jobs to the global south and weakened trade unions, with the rise of low-wage sectors and precarious employment. This, coupled with the erosion of welfare benefits, has fuelled the ascent of authoritarian nationalism in the United States and Europe.

The emergence of illiberal regimes, exemplified by Hungary, is merely the visible aspect of deteriorating democratic quality in many nations. Despite the rise of relatively well-educated, young and urban middle classes in emerging countries, democratisation processes have not materialised, with the political focus often on expanding material prosperity at the expense of suppressing dissent. State-capitalist models have consolidated their grip.

More trade does not entail more international co-operation: the doux commerce thesis, positing that international trade would have a ‘soft’or civilising impact on interstate relations, has similarly not come to fruition. Global governance mechanisms have failed to bring about more effective international politics and joint management of challenges, as evident in the slow progress on climate issues or the severe lack of co-operation on health during the pandemic.

The ascendancy of China and other major emerging economies has challenged the traditional leadership roles of old capitalist centres such as the US and western Europe, leading them to adopt a geopolitical trade policy. This prioritises national-security objectives over free trade and regulatory dismantling, emphasising ‘strategic autonomy’, technological sovereignty and support for domestic industry through substantial subsidy programmes. Just when global co-operation is most needed, it is in crisis.

Decarbonisation in the north implies more extraction of raw materials from the south: the geopoliticisation of trade policy has sparked a revival of industrial policies against the backdrop of decarbonisation and digitalisation. These transformations necessitate vast quantities of critical raw materials, such as lithium. Ensuring a stable supply of (renewable) energy and these essential raw materials is however increasingly viewed through the lens of security policy, due to heightened geopolitical rivalries.

While the climate crisis compels us to achieve net-zero carbon-dioxide emissions by 2050, accomplishing this goal will demand a substantial increase in consumption of critical raw materials over the coming decades. These are predominantly found in Africa and Latin America and there is a risk of perpetuating an extractive economic model, deeply rooted in colonial times, which focuses on the export of unprocessed raw materials.

Such ‘green extractivism’ generates low value-added for the producer countries and imposes severe social costs on local, often indigenous, people while exacerbating environmental degradation. Hence, decarbonisation in the global north may inadvertently deepen resource exploitation in the south, reinforcing centuries-old dependencies. Political resistance to this will emerge.

Comprehensive challenge

These three paradoxes highlight the comprehensive nature of the challenges we face. European and international trade policy must rise to the occasion by pursuing new forms of co-operation deliberately dissociated from the geopoliticisation of trade. A trade policy based on solidarity and oriented toward the needs of the weaker partners is imperative. The increasing regionalisation of supply chains, vital for socio-ecological transformation and supply security, must be complemented by a solidarity-driven agenda to address global challenges fairly.

The emerging multipolar world offers opportunities for this, especially considering the growing self-confidence and political emancipation of the global south. The European Union, in particular, should seize this opportunity to develop its own foreign (economic) policy profile through dialogue with the global south on an equal footing. Civil society and academics dedicated to shaping a progressive trade policy can meanwhile help formulate a New International Economic Order 2.0.

This article draws on discussions at a conference in June on the future of trade in a polarised world order, organised by the Austrian Foundation for Development Research (ÖFSE) and partners