Caroline Baum, Don Boudreaux, Fast Track Authority, Free trade, Intellectual Property Rights, Mercantilism, Protectionism, Trade Promotion Authority, Trans-Pacific Partnership
Even ardent supporters of the Pacific trade deal get one thing wrong consistently: promoting free trade is not so much about domestic producers, jobs and export promotion as it is about consumers, prices and improved access to imports. The latter are the real rewards of trade, while the former are more appropriately viewed as payments. This was the subject of “Free Trade Lets You Make a Deal” on Sacred Cow Chips in April., in which I quoted Greg Mankiw:
“A nation benefits from imports, [Adam Smith] argued, because they expand its opportunities for consumption. Exports are necessary only because other nations have the temerity to want to be paid for the goods they provide.“
Free trade is a process of exploiting exchanges that are mutually beneficial, but based on the commentary in the press and social media, one would think it was something harmful. You could hardly blame anyone from drawing that impression based on the way governments negotiate trade deals. Last month, Don Boudreaux had a humorous take on this in “If Buying A Car Were Like Negotiating A Trade Deal“. The parties just can’t tolerate a better deal!
To draw another analogy, when IKEA opens a store in a new town, consumers are excited about the goods available there, and about the new shopping experience. When the circus comes to town, people are thrilled by the “imported” entertainment. They are not especially antagonized about the extra spending this might entail, or the extra hours they might have to work in order to afford it. Of course, the cheaper, the better. Yet when it comes to foreign trade, the general commentary turns this logic on its head: you’d think our concerns centered around a desire for more expense and that our access to new goods is a nuisance!
Opposition to trade deals among progressives is based on classic protectionist sentiment. This usually ends in protecting rents earned by interests that would rather not face competition. Nothing could be more corporatist in its effect. But it is obviously counter-productive to argue in support of industries that cannot compete internationally, so opponents retreat to accusations that trading partners cheat by selling below cost or manipulating their currencies. If so, those policies represent gifts to the U.S. It would be wonderful for the country if the flow of gifts from abroad continued indefinitely, but that is not sustainable. As matters are rationalized over time, and they will be, opportunities will present themselves to U.S. producers, who may well be in better stead by virtue of the earlier gifts from abroad. Don’t look a gift horse in the mouth by favoring domestic rent seekers.
Like Boudreaux, I support trade deals like the Trans-Pacific Partnership (TPP) “with my nose held tightly“. Deals like this generally do reduce trade barriers, though they invariably involve politically-motivated nonsense like the imposition of cross-country rules and regulations that negate some of the economic gains.
Caroline Baum has a good summary of legislation related to the TPP, which involves the president’s “fast-track” negotiating authority as well as assistance to “workers who are adversely affected by a trade agreement“. The trade deal, fast track and trade assistance have created strange political bedfellows and estrangements. Baum notes the confusion surrounding the real benefits of trade from fast track’s biggest proponent:
“Obama’s entire trade pitch – ‘the more we sell abroad, the more jobs we create at home’ – is a thinly disguised mercantilist argument: the idea that a country can export its way to prosperity. It’s a mistake to think that the advantages of free trade are limited to the export side.“
Some otherwise strong supporters of free trade are opposed to granting Obama fast-track authority, despite the fact that the last six presidents have had that authority. I am as skeptical about Obama’s leadership and negotiating skills as anyone, and I have little faith that he would keep sight of the main objective, were he actually sitting at the negotiating table. That would be lower trade barriers, not the environment or any other intrusion into the domestic policies of other parties to the deal. If our domestic regulatory standards are tougher or involve greater expense than those abroad, that should be afforded by greater U.S. productivity, not by making our producers uncompetitive on international markets. And if that is the case, our standards should be reassessed, we should recognize the prohibitive impact that our standards could have on the costs of our trading partners, and we should hope for those partners to eliminate any additional barriers to our goods.
I am also opposed to making the trade deal hinge on the extension of tougher intellectual property (IP) rights to poor Asian nations, though that is certain to be part of the negotiations. There is disagreement among economists about whether such an extension of IP rights would be good or bad.
I would like to see Congress grant Obama fast-track authority, but only because Congress will still have the authority to approve or reject a final deal. The promise of reductions in trade barriers is unequivocally positive. We’ll have to evaluate the downside when the deal goes before Congress.