Sales
people are usually reluctant to fight their
customers
Peace
is partly an outcome of two of the most fundamental principles of the
trading system: helping trade to flow smoothly, and providing
countries with a constructive and fair outlet for dealing with
disputes over trade issues. It is also an outcome of the international
confidence and cooperation that the system creates and reinforces.
History
is littered with examples of trade disputes turning into war. One of the
most vivid is the trade war of the 1930s when countries competed to
raise trade barriers in order to protect domestic producers and
retaliate against each others’ barriers. This worsened the Great
Depression and eventually played a part in the outbreak of World War 2.
Two
developments immediately after the Second World War helped to avoid a
repeat of the pre-war trade tensions. In Europe, international
cooperation developed in coal, and in iron and steel. Globally, the
General Agreement on Tariffs and Trade (GATT) was created.
Both
have proved successful, so much so that they are now considerably
expanded — one has become the European Union, the other the World
Trade Organization (WTO).
How
does this work?
Crudely
put, sales people are usually reluctant to fight their customers. In other words, if trade flows smoothly and both sides enjoy a
healthy commercial relationship, political conflict is less likely.
What’s
more, smoothly-flowing trade also helps people all over the world become
better off. People who are more prosperous and contented are also less
likely to fight.
But
that is not all. The GATT/WTO system is an important confidence-builder.
The trade wars in the 1930s are proof of how protectionism can easily
plunge countries into a situation where no one wins and everyone loses.
The
short-sighted protectionist view is that defending particular sectors
against imports is beneficial. But that view ignores how other countries
are going to respond. The longer term reality is that one protectionist
step by one country can easily lead to retaliation from other countries,
a loss of confidence in freer trade, and a slide into serious economic
trouble for all — including the sectors that were originally
protected. Everyone loses.
Confidence
is the key to avoiding that kind of no-win scenario. When governments
are confident that others will not raise their trade barriers, they will
not be tempted to do the same. They will also be in a much better frame
of mind to cooperate with each other.
The
WTO trading system plays a vital role in creating and reinforcing that
confidence. Particularly important are negotiations that lead to
agreement by consensus, and a focus on abiding by the rules.
10
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