Chairman's Desk

Reviving middle class key to saving global trade

Too many middle class workers have been left behind in the free trade sweepstakes and its time for politicians to find solutions for them or they risk destabilizing the global trading system

On Nov. 21, 1988, after a rigorous debate over free trade with the United States, Prime Minister Brian Mulroney’s government was re-elected with a solid majority mandate. Canadians had declared themselves free-traders.

The notion that free trade would kick-start job creation and economic growth gained currency in the late 1980s. Since then trade pacts signed by nations across the world have proliferated. Canada itself — under both Liberal and Conservative governments — has expanded its trade opportunities.

There are compelling reasons to believe free trade is a force for good in our world. History has demonstrated that open trade and investment lead to more growth, the creation of good jobs and greater prosperity around the world. Countries that engage in free trade are more likely to adopt secularist, democratic principles, allowing persecuted citizens a path to attain and expand their rights.

Furthermore, as nations such as China, India, and Egypt began to seize the benefits of free trade, their middle class burgeoned. In Canada, since NAFTA came into force, 4.7 million jobs have been created, and our trade in goods with the United States and Mexico has more than tripled.

Yet, despite these positives, the public’s belief in free trade is wavering.

Ten days ago, International Trade Minister Chrystia Freeland emerged from negotiations in Brussels to lament that the European Union was on the brink of sinking the heralded Canada-EU Comprehensive Economic and Trade Agreement.

Though the CETA crisis appears to have passed, the incident was not an isolated one. The United Kingdom’s vote to leave the EU was in large part a rejection of the economic integration that had been accelerating to the discomfort of many Britons. There are similar, burgeoning leave movements in the Netherlands, France and Italy.

The World Trade Organization recently slashed its forecasts for global trade, predicting the pace of trade to dip to its slowest since the 2009 global recession. This would set the growth of global trade below the growth of global GDP for the first time in 15 years.

WTO director general Roberto Azevedo acknowledged the growing antiglobalization sentiment around the world, and he pressed policy-makers to resist making decisions that run counter to free and open trade.

It is an unfortunate reality that the Great Recession of 2009 shook the economic underpinnings of the world economy to its core. Governments have been slow to recognize that this represents an enormous challenge to global growth.

It is also not a phenomenon limited to a handful of countries across the ocean.

Closer to home, Bernie Sanders, by railing against the Trans-Pacific Partnership, threatened what was supposed to be a virtual coronation for Hillary Clinton as the Democratic nominee for the U.S. presidency. Donald Trump rose to prominence in the Republican nomination contest using a similar anti-free trade message.

We now have both major presidential nominees promising to not sign the TPP, a move that may effectively stop the erstwhile deal dead in its tracks.

Freer global trade has produced winners and losers. For the winners, incomes and opportunities have skyrocketed. Global poverty has decreased sharply. A functional middle class has emerged in many of the world’s most deprived regions. Here in the West, the richest people are, by all accounts, growing richer.

But for middle-class workers in the West, incomes have stagnated. Those who were once the most-advantaged in the world now see themselves as treading water, at best, while the rest of the world advances. Blue-collar workers in places like Akron, Ohio, and Stratford, Ont., have seen jobs dry up and opportunities disappear.

Our politicians have signed these deals fully aware that along with acquiring benefits they were signing away tens of thousands of well-paying manufacturing jobs.

Yet, those politicians have not provided a solution. There is no plan to increase opportunity, or to help find a solution. The frustration of the middle class has been met with political promises, but little in the way of real action.

The stark truth is that global economic prosperity lies in increasing economic transactions between developed and developing nations. Trade deals are an important part of that relationship.

But middle-class workers in the developed world must consent to these deals — and that consent has grown increasingly uncertain. For politicians to earn it back, they must offer concrete solutions on bridging the gap between those who have so far benefited from free trade and those who haven’t. Nothing less than the stability of the global trading system is at stake.

Jaime Watt is executive chairman of Navigator Ltd. and a Conservative strategist.

This article first appeared in the Toronto Star on October 30, 2016.

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