5. Free trade effects

There are arguments that support a free trade policy as well as arguments that support various types of protectionist policies. Cross-country evidence suggests however that more open economies have higher income levels and also grow faster. Therefore, openness is important for economic growth both in the short and long term. In the short term, net exports are a source of demand.

In the long term, trade is a channel for knowledge transfer and for specialization according to comparative advantage, thereby improving resource allocation and supporting higher economic growth and welfare over time.¹⁹

One of the main EU goals is to improve Europe’s economic performance. It can be achieved by increasing both European competitiveness and cooperation in international trade. The evidence of the EU trade policy results can be observed on the European job market as international trade is an important engine for job creation. According to the Eurostat: 

• EU exports support 36 million jobs, up two thirds from 2000. Nearly 14 million of these workers are women. 1 in 7 jobs in the EU depends on exports.
• EU exports support a significant share of jobs in all countries across the EU.
• Exports create opportunities for everyone, both skilled and unskilled workers.
• These jobs are better paid on average.
• Thanks to the EU Single Market, one fifth of the export-supported jobs are located in a different Member State than the one exporting.²⁰

Some people oppose the benefits of trade in spite of a large body of literature, which documents the link between growth and openness to trade. ²¹ It happens, because opening any economy creates both winners and losers. For example, after enlarging the EU with Eastern European countries, some Western European high-wage countries experienced an unemployment rise among the lower-qualified workers. ²² The “Polish plumber” even became an iconic

example of cheap labour, who might contribute to lower social standards in Germany or even come and steal French jobs.²³ At the same time, Eastern European countries were afraid of becoming just a market extension for Western economies on the one hand and of being bought out by wealthier nations on the other. In fact in 2004, after joining the EU, Poland experienced an inflation rise caused by a higher demand for consumer goods from Western countries (Tab. 6).

One of the main arguments against free trade is that the gains and pains of trade are spread unevenly among citizens and between industries. For example, one of the reasons for Brexit was a poor assessment of the EU’s trade policy among British citizens. The EU protects sectors of clothes and other labour-intensive goods which are produced in some Southern and Eastern EU countries.

Britain advocated less protective trade policies for the benefit of the consumers but had been outvoted by other EU members.²⁴ Therefore unless there is a general belief that the gains and pains of trade are shared fairly, it is difficult to maintain a social consensus for liberal trade policy. ²⁵

Table 6. Consumer Price Index and Food and non-alcoholic beverages Price Index in Poland 2003 – 2006

Source: Statistical Office of Poland GUS, www.stat.gov.pl

The other problem arises if trade partners do not cooperate in a fair manner. In 2013, the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and USA were launched and ended without conclusion at the end of 2016. Despite potentially benefiting millions of consumers by facilitating trade conditions through the removal of technical and non‒tariff barriers and the harmonization of legislative regulations and standards, the TTIP had been long contested by lobbyists in the NGO sector.

Although the TTIP was a proposed free trade agreement reducing the regulatory barriers to trade, the TTIP negotiations were criticized mainly for going far beyond standard trade settlements. The proposed TTIP agreement generated widespread public debate on its potential impact on citizens, consumers and businesses including the risk of contamination with genetically modified organisms, toxic chemicals exposure, and lower American standards for specific products or the lack of transparency regarding the talks.²⁶

Finally, after the United States had withdrawn from the Paris Agreement on climate change and past efforts had demonstrated difficulties in negotiating mutually acceptable commitments in areas identified as priorities by the Union, the negotiations were cancelled by the EU. ²⁷