Why Jagdish Bhagwati isn’t overly worried about world trade

To this day, any conversation with Bhagwati, now 91 and retired from Columbia University, is both educational and entertaining. Ask which metro stop is closest to his apartment and one not only receives directions but also a story, told in a way that is more comic than tragic, about R.K. Laxman. On a visit to Bhagwati’s home decades ago, the legendary cartoonist missed the correct subway stop and wandered bewildered through a dangerous neighbourhood. 

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Ever since the new US administration decided to unilaterally impose tariffs on the rest of the world this year, the global trading system has become a rough neighbourhood. The reassuring news from academia’s foremost champion of free trade is that the world trading system is in much better shape than expected. 

He dismisses the view that the EU has been cowardly in its trade discussions with the US. He argues that EU leaders are being “pragmatic" by “waiting and watching," which is sensible when “you are facing an opponent who is bobbing up and down and in different directions." Happily, Bhagwati says the global trading system today is too integrated for the world economy to suffer as it did a century ago when the Smoot-Hawley tariffs were signed by president Herbert Hoover in 1930.

While it is too early to calculate the costs, retailers in the US as well as exporters to the US have thus far sacrificed margins to keep a lid on price increases. Last week, however, Walmart’s CEO Doug McMillon warned that the retailer was routinely seeing cost hikes by suppliers that would be passed on to shoppers. Costs have risen each week, he said, and this was expected to continue into the year’s third and fourth quarters. Tariffs are expected to cost an average household an additional $2,400 this year, the Yale Budget Lab calculated recently.

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The irony may be that as America’s developed trade partners comply with unreasonable demands, their economies may hold up better by comparison. Bhagwati says that exporters in Japan and the EU are suffering “terms of trade" pressures as firms cut margins to stay competitive. But, by not trying to retaliate, neither will European and Japanese consumers suffer price hikes across the board, nor will their companies get addicted to tariff protection and form lobbies that would make it difficult to reduce tariffs later. This is too often the case in the US today and has long been true in India.

Bhagwati’s powerful yet pithy defence of globalization has never seemed more relevant than it does in 2025. His punchy book, In Defense of Globalization, published two decades ago, took aim at the pomposity and posturing of an assorted cast of characters, ranging Wall Street and Oxfam to former World Bank president James Wolfensohn. 

His book used elegant everyday analogies to argue the case for free trade, a strategy today’s politicians should adopt instead of running scared of populism. Early in the book, he wrote, “If I exchange some of my toothpaste for one of your toothbrushes, we will both have whiter teeth, and the risk that we will have our teeth knocked out by this exchange is negligible."

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With the delightful mischievousness that has long characterized his writing as well as conversation, Bhagwati observed that the British NGO Oxfam, and others like it, all too frequently expressed opinions on economics and globalization without understanding much about either. “Causing harm to poor countries cannot have been the intention of Oxfam, yet the road to hell is paved with good intentions," he wrote. “Oxfam knows a little, but not enough about trade policy. Mission creep, even by non creeps, is not a good idea."

In Bhagwati’s arguments for free trade and the efficiencies it brings, he has been critical of developing countries that have average tariffs much higher than those in the developed world. Impartially taking down self-serving economic ideologues, as far back as the 1990s, he coined ‘Wall Street Treasury Complex’ as a term to denounce excessive financial liberalization via overly free capital flows forced upon countries such as Korea and Indonesia. 

He identified this as a root cause of the Asian financial crisis of 1997. He went on to argue that this world-view was the result of a revolving door between Wall Street and the US Treasury as well as the International Monetary Fund and the World Bank: “They wear similar suits, not just similar ties." This observation proved prescient because the over-financialization of Western economies was not only behind the Great Financial Crisis of 2007-08, but remains a pressing concern.

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Bhagwati’s experience watching India’s Planning Commission at close quarters decades ago makes him worry about industrial policy initiatives such as ‘Make in India.’ He is concerned that too many Indian bureaucrats remain reluctant liberalizers. 

Back in the Licence Raj days of the 1960s, Bhagwati recalls listening to a bureaucrat denouncing the waste of national resources on the manufacture of products such as lipstick. Always impish and incisive, there is a trademark giggle before he delivers the punchline. He recounts he could not help but smell the Brylcreem in the bureaucrat’s hair.

The writer is the author of ‘Right of Passage,’ a collection of travel essays.