2025-02-09
It has been some time since Adam Smith and David Ricardo open-sourced the code for free trade - world arena. It is a global multiplayer game where countries participate in free trade. This free trade is "free as in freedom" not "free as in free beer" as countries have liberty to enter into trade devoid of restrictions like tariffs, quotas and other unfair trade practices. Which leads to giving more choice to companies and consumers.
Now like any other multiplayer game, it is only fun if everyone play by the rules. The rules of free trade is to keep it FREE (duh!) from restrictions and the TRADE part will be taken care by itself. As if the trade is free wherein all participant countries can enter each other's market and each product is exposed to global competition. Then all the countries will be forced to produce (mostly) those commodities which they can produce in better quality with lesser cost. For instance India has a natural advantage for the production of cotton. And has acquired advantage for the production of jewelry. Both of which India exports to the world, giving the world consumers better quality with lesser price. Meanwhile, importing processors which it can't produce domestically with same price and quality.
At first not all countries were willing to play the free trade game. Some were busy playing their closed-source alternatives such as socialism and so on. But once they started to bear the cost after the end of free-trial-run, and found their economy to be poorer than free-trade counterparts, they realized it's time to switch and opened their servers/doors for global companies.
My own country was playing a closed source alternative for so long that when it unlocked its servers or market access for global players like coca-cola - my grandfather who must have been around 40 at that time had his first sip of coca-cola and thought it was some sort of sweet alcohol.
However, the livestream gameplay of free trade - world arena, has always been under the scrutiny as some players used cheat scripts to get edge over the other players. For instance, despite being the proponent of "play by the rules", USA has itself given some of the highest subsidies to its farmers in order to keep them competitive globally. China has given massive subsidies to its EV production which helps it to keep the prices aggressively low in global markets so much as so that EU had to increase the tariff from 10% to as high as 45% of EVs coming out of china. Not only EVs, solar panels manufactured in China accounts for 80-95% share globally. These aggressive cheat scripts lead china to $1 trillion dollar trade surplus in FY24-25.
It may not be right to blame only China and USA for this, almost all countries spend fortune to get more and more of the 'acquired advantage'. As the age of 'natural advantage' has become stagnant, countries must get acquired advantage over the production of new technology to keep staying competitive. Actually not only 'competitive' but to gain wealth in the form of 'trade surplus' which can be channeled to fuel the military and reach geopolitical ambitions.
This situation is leading to far worse consequences, countries are now losing trust on free trade. "Too many cheaters in the global server as" they as an argument to foster indigenous products. Although there is nothing wrong with fostering indigenous products but for how many products can you go indigenous? As no single country can be the master of all trade. It can, at best, produce handful of HSN codes with acquired or natural advantage. That's why going all indigenous is not the solution. So what is? Well I guess someone has the solution.
As any sort of global welfare can only be achieved if there is trade equilibrium. That was the assumption by Adam Smith and Ricardo. But the countries which would want to hoard wealth, take trade surplus in order to be stronger apolitically must be corrected. Because these efforts lead to unfair trade practices as we have seen in the case of China. Now, what could be a better way to correct than direct high tariffs? i.e Tariffs imposed by group of democratic, free trade proponent countries. But then again it is complicated to gain general consensus to tariff bad players. There are already institutions like WTO, but more or less they have been unsuccessful to punish unfair trade practices. However, a two tier tariff model can be proposed, wherein democratic countries can come together and build common tariff policy, lower tariffs for democratic and 'free trade good bois' and higher slab rates for undemocratic and shady trade practicing countries.
However, as trade policies are forever changing, this group of democratic and free trade proponent countries can make it such that they would revive their tariffs every three years. Meanwhile whichever country, within the group or outside the group, which practiced unfair trade can be punished and vice-a-vera.
Chances of this actually happening may be less, but there is no other choice. If all the countries play the free trade game by rules, there will be welfare for all. But if bad players with cheating tactics (unfair trade practices) are allowed equal access, they will end up sucking all the wealth from 'we-play-by-the-rules' countries.
It is the time when democratic, free-trade proponent countries must come together. Stand straight. And take bold steps against unfair trade practices by imposing higher tariffs from all sides.