Perceived shifts in sentiment toward globalization and free trade have led many to conclude that we are entering a new era of protectionism that contrasts sharply with the previous period of expanded global commerce.
To some, Donald Trump’s election as president of the United States, driven by promises of trade-deal withdrawals and renegotiations, the collapse of the Trans-Pacific Partnership (TPP), and the United Kingdom’s pending withdrawal from the European Union stand as clear evidence that a new consensus on free trade is emerging.
Continued protests at international gatherings such as the anti-globalization manifestations at the most recent Group of 20 meetings help reinforce the belief that an expansion of the global trading system is at worst finished, and at best stalled.
Yet while free trade has served as an effective whipping boy for politicians across the spectrum, not all countries are embracing protectionist policies. In the face of attacks on existing trade institutions, some countries are doubling down on trade, searching for new trade partners, or strengthening existing partnerships.
Last week’s announcement that Latin America’s Pacific Alliance trade bloc would begin negotiations for a free-trade agreement (FTA) with Australia and New Zealand is a prime example that trade is alive and well.
Composed of Mexico, Chile, Colombia and Peru, the Pacific Alliance is an economic powerhouse comprising 220 million consumers whose members collectively represent the world’s sixth-largest economy. Meanwhile, Australia and New Zealand are both developed economies with sophisticated exporters seeking to reach new markets. Despite the geographic distance between the two regions, both are hoping to benefit from new opportunities created from preferential market access and greater regional integration.
As the saying goes, crisis breeds opportunity. Anti-trade sentiment and policy shifts undoubtedly played a key role in providing the necessary impetus for the launch of FTA talks between the Pacific Alliance and Australia and New Zealand.
Mexico, the largest economy within the Pacific Alliance, finds itself in the midst of a contentious and complex renegotiation of its most important trade pact, the North American Free Trade Agreement (Nafta), which in 1994 established a bloc consisting of Mexico, Canada and the US. The uncertain horizon and prospect of unfavorable outcomes from the renegotiation looms heavy on Mexican exporters. Such uncertainty has led Mexico to expand its outreach to China while at the same time resurrecting talk of a Mexico-China FTA.
Yet Mexico is not the only Pacific Alliance country with the potential for rocky trade relations with the United States; all four member states enjoy the benefits of FTAs with the US. President Trump’s pledge to re-examine all of the United States’ 14 trade agreements must not sit easy with Chile, Colombia or Peru, all economies that benefit greatly from preferential trade with the vast US market.
In looking to the Asia-Pacific region for new trade partners, the Pacific Alliance is hoping to ameliorate the effects of any potential disruption in its existing trade relationships. In this case, diversification is the name of the game.
For their part, Australia and New Zealand remain stung from the United States’ withdrawal from the Trans-Pacific Partnership, an agreement negotiated over eight years that would have created a massive trade bloc including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and, of course, the United States. With Australia’s FTA with the US also under threat of re-examination, the failure of the TPP in the not so distant past, and the desire to tap into new and expanding markets, the Pacific Alliance with its deep integration and large market is a natural fit for both Australia and New Zealand.
The Pacific Alliance, New Zealand and Australia have opted to double down on the global trading system. This is a win for global trade. Yet it would be erroneous and dangerous to dismiss anti-trade sentiment as a passing fad. While free trade has generated considerably benefits for many of the world’s inhabitants, it is not without its problems. Work must continue to improve social safety nets for displaced workers, ensure environmental regulations are up to par, and make sure labor standards effectively protect workers.
The prospect of an expanded Pacific Alliance with trade agreements with Australia and New Zealand shows that while some countries may be retreating from trade pacts, others are forging forward. Importantly, this is not an isolated example. Elsewhere, other initiatives such as China’s Belt and Road Initiative are also seeking to expand and create grater trade linkages among neighbors and trade partners.
To the dismay of globalization nay-sayers, free trade is alive, well, and in some places even growing. Let’s maintain this trend.