Free trade is crucial for global economic health as India-UAE agreement shows

Omar Al-Ubaydli
Omar Al-Ubaydli
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Both India and the UAE will reap considerable benefits from their newly signed free trade agreement. In this regard, the deal represents a triumph for the technocrats who worked hard for several years to make it happen. Unfortunately, ordinary people are usually suspicious of globalization, especially following the 2008 global financial crisis.

Economists are frequently ridiculed for their propensity to disagree on important issues such as tackling unemployment, growing the economy, and what risk a sizeable public debt poses to an economy. While the stereotype of a vacillating economist can be pretty accurate, there are a few things on which we do generally agree.

Unfortunately, on the rare occasion when economists forge a professional consensus, the view usually runs counter to what ordinary people think is right. For example, economists are almost unanimous in their support for technological progress, regarding it as a source of jobs and economic prosperity. Yet, ordinary people are frequently averse to innovation as they see it as a threat to their jobs.

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One of the most critical areas where economists have a standard view that runs counter to the general public is free trade. A large body of rigorous scientific work demonstrates how free trade generally benefits all sides by enabling people to specialize in what they do well and allowing countries to more effectively import foreign technologies. The consensus among economists had held fast since at least the late 18th century, when Adam Smith wrote The Wealth of Nations, including New York Times progressive columnist Paul Krugman, who earned the economics Nobel Prize for his pro-free trade work.

Unfortunately, these arguments are subtle, and economists are often poor communicators, so as a result, the general public doesn’t buy it. Some will go so far as to claim that free trade is a giant plutocratic conspiracy to keep the masses impoverished and immiserated.

In the golden era of globalization (1990-2008), governments were able to make a good enough case for free trade that ordinary people either bought in, or tempered their opposition, writes Omar Al-Ubaydli. (File photo: Reuters)
In the golden era of globalization (1990-2008), governments were able to make a good enough case for free trade that ordinary people either bought in, or tempered their opposition, writes Omar Al-Ubaydli. (File photo: Reuters)

In the golden era of globalization (1990-2008), governments made a good enough case for free trade that ordinary people either bought in or tempered their opposition. However, since 2008, trade policy has become more hawkish and nationalistic in almost all countries. There has been a sharp rise in the popularity of politicians brandishing anti-free trade slogans. The most salient manifestation has been the Sino-American trade war, which has caused considerable damage to the global economy.

The GCC populations have exhibited similar tendencies. When talking about the economic integration that has occurred under the GCC umbrella, I have heard many ordinary Gulf citizens scoff that the “only tangible benefit has been the ability to travel between countries using an ID card and without the need for a passport.”

These statements sound like someone running their fingernails down a blackboard to an economist. Still, they serve as a reminder of how bad economists have been in convincing the general public about the value of free trade.

India has long been a relatively closed economy with a deep suspicion of free trade, even at the level of elite decision-makers. However, propelled by the promise of significant economic returns, the South Asian giant has been more receptive to the idea of opening its markets to other countries during the last 20 years.

As the fifth-largest economy globally, India is a desirable trading partner for any suitor, especially so for a country with a population of 10 million, such as the UAE. Many of the 21st-century technologies need significant investments and large production levels. So for them to be economically viable for a country, its businesses require access to a vast market.

The UAE, under the GCC umbrella, has been trying to secure access to large markets such as the EU and UK, but negotiations have been slow. Establishing a free trade agreement with India relieves the pressure and instantly makes the UAE more attractive for global multinationals.

Had the decision been left to ordinary Emiratis and Indians, the agreement would likely have never been signed, thanks to globalization’s bad reputation in most countries. Fortunately, technocrats in both states have asserted sufficient authority over trade policy to get the deal signed. Whether they realize it or not – and most likely they won’t – the residents of India and the UAE will benefit substantially from access to each other’s markets over the coming years. The challenge for Emirati and Indian economists is convincing both peoples of those benefits.

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