The Case for Market Openness

The OECD has recently published International Trade: Free, Fair And Open?, a new book aiming to show how trade contributes to economic growth and job creation. It’s a timely reminder of the need for market openness in times of economic crisis. As Ken Ash, OECD Director for Trade and Agriculture, put it,  government actions to discriminate against foreign goods, services, firms or workers “could have a devastating effect in terms of prolonging and deepening the recession.” More specifically: 

  • Consumers would be hurt by higher prices and reduced choice. 
  • Domestic industries would face higher input costs, as a huge amount of trade today is in intermediate goods and services. 
  • Exporters would be penalised twice:  through higher costs and through retaliation from other countries. The net effect on the economy would be even bigger job losses than otherwise.

Another interesting bit of information in the OECD book:  Projected welfare gains through trade liberalisation:

 

Trade liberalization and welfare gains

One of the big questions in the current debate is whether failure to reach a climate agreement in Copenhagen would lead to a rise in what has been termed “carbon protectionism”.  Krugman certainly has a view on that.

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