24th Lecture - International Trade with Pascal Lamy

Date: Friday, 19 November 2024

Time: 15.00 - 16.30 (GMT +7)

Platform: Zoom Meeting and Youtube Livestream

Speaker: Pascal Lamy, Coordinator of the Jacques Delors Think Tanks (Paris, Berlin, Brussels), Vice-President of Paris Peace Forum, Former Director General of WTO, Former Trade Commissioner (European Commission)

Moderator: Dr. Paolo Lim,  Assistant Professor at the University of Asia and the Pacific

Why We Trade and Comparative Advantage

We trade because if I do something better than you do, and you do something better than I do, then we have a rational, obvious interest to trade. I will buy you what you do better than me, you will buy me what I do better than you, and we both will be winners. I will have a lower price for what you sell to me than what I would have at home and the other way around. This is called the law of comparative advantage. My advantage, your advantage, then we trade and we both benefit. These advantages are of two categories: natural advantages endowments, and another category of comparative advantage which is more man-made, which results from the better use of technology, of higher capacity, a better know-how to do something.

The Five Shaping Factors of International Trade

I will list five of them: geography, ideology, technology, geopolitics and institutions. Geography matters because of the cost of distance. Ideology has two different camps: one which is pro-trade openness and one which is less pro-trade, which is called protectionism. Technology has a big impact as it reduces the cost of distance. Geopolitics matters because the world is not just driven by reason and very often driven by passion. Finally, institutions matter because this law of comparative advantage needs to be properly enshrined in normative institutions, legal frameworks and rules, to make sure that international trade is played fairly.

Shift from Geoeconomics to Geopolitics in Today’s Trade System

Geoeconomics used to temper geopolitics. We are now back to a situation where geopolitics have taken over geoeconomics, thus limiting this positive effect of economic interdependence. What was a benefit, what was a plus in trade openness becomes a minus if I am too overdependent, then I feel vulnerable. This risks leading to less growth, less efficiency, less welfare, hence less peace. We are now in a world which is much more fragmented, much more dangerous, where obstacles to trade are growing and institutions like the World Trade Organization are weakened.