Trump pro­poses a free-for-all on free trade

▶▶The GOP stan­dard-bearer says he can sue for bet­ter deals ▶▶“Even me­dieval Europe found that trad­ing in large mer­chant fairs re­quired… le­gal in­sti­tu­tions”

Bloomberg Businessweek (Asia) - - CONTENTS - Bren­dan Gree­ley TPP

In the past few weeks, Don­ald Trump has set sev­eral decades of Repub­li­can­backed U.S. trade pol­icy on fire. Trump, the pre­sump­tive GOP pres­i­den­tial nom­i­nee, said that if elected, he’ll aban­don talks on the 12-na­tion Trans-Pa­cific Part­ner­ship, a deal that GOP lead­ers in Con­gress sup­port. He in­tends to rene­go­ti­ate the 1993 North Amer­i­can Free Trade Agree­ment, ham­mered out by Pres­i­dent Ge­orge H.W. Bush and signed by Pres­i­dent Bill Clin­ton. He would also sue China more often at the World Trade Or­ga­ni­za­tion.

Th­ese moves are nec­es­sary be­cause ex­ist­ing U.S. trade pol­icy causes “poverty and heartache,” Trump has said in his stump speeches. He in­sists he’s a free trader at heart, but he wants re­form, to en­sure Amer­i­can in­ter­ests are pro­tected. “I’m not against trade,” he ex­plained at a June 30 town hall in Manch­ester, N.H. “I just want to make bet­ter deals.”

Democrats some­times call this ap­proach “fair trade.” Trump will find it as dif­fi­cult to achieve as they have. “I’m go­ing to di­rect the sec­re­tary of com­merce to iden­tify ev­ery vi­o­la­tion of trade agree­ments a for­eign coun­try is cur­rently us­ing to harm our work­ers,” Trump promised in a June 28 ad­dress on trade in Monessen, Pa.

Julia Gray, an as­sis­tant pro­fes­sor at the Lon­don School of Economics, watched on television. “I was like, Ooh, I want that data,” she says. She doesn’t have it be­cause it doesn’t ex­ist. Vi­o­la­tions are sub­jec­tive, dif­fi­cult for even ex­perts to pin down: “It’s re­ally hard to fig­ure out what’s one coun­try’s sub­sidy and what’s another coun­try’s closely guarded health and safety stan­dard.”

Gray says her re­search shows that politi­cians sel­dom fol­low through on cam­paign threats to rene­go­ti­ate or aban­don trade agree­ments. She’s also found that many agree­ments end up as what she calls “zom­bies”—signed but mean­ing­less, be­cause they lack en­force­ment. So it might seem log­i­cal that a more liti­gious U.S. ad­min­is­tra­tion could suc­ceed in im­prov­ing the Amer­i­can po­si­tion just by get­ting other coun­tries to abide by the terms to which they’ve al­ready agreed.

The trou­ble is that there isn’t good ev­i­dence that Trump’s ap­proach will work. A 2016 pa­per in In­ter­na­tional Stud­ies Quar­terly by in­ter­na­tion­al­re­la­tions pro­fes­sors Stephen Chau­doin, Jef­frey Ku­cik, and Krzysztof Pelc looked at 15 years of WTO cases and failed to find a sig­nif­i­cant in­crease in trade af­ter dis­putes were set­tled. That is, if China blocks wid­get im­ports, and the U.S. wins a chal­lenge at the WTO, it’s not nec­es­sar­ily the case that China will start buy­ing more Amer­i­can wid­gets. “The oc­cur­rence of a dis­pute does not in­crease the size of the to­tal trade pie,” the au­thors wrote.

Trump has said that even though he wants to hold other coun­tries to ac­count, he’s wary of strong en­force­ment mech­a­nisms built into trade deals that might in­ter­fere with what the U.S. wants to do. The Trans-Pa­cific Part­ner­ship, he says, “will un­der­mine our in­de­pen­dence.” In this way, he’s sim­i­lar to those who cam­paigned for the United King­dom to leave the Euro­pean Union. They wanted free trade with Europe but not the reg­u­la­tions that went with be­ing in the EU. “The Euro­pean Court of Jus­tice,” former Lon­don Mayor Boris John­son said dur­ing the cam­paign, “is now tak­ing de­ci­sions on ab­so­lutely ev­ery sphere of po­lit­i­cal life in this coun­try.”

Fair trade re­quires both rules and en­force­ment, says Christina Davis, who teaches trade pol­icy at the Woodrow Wil­son School of Pub­lic and In­ter­na­tional Af­fairs at Prince­ton. You can have no trade and per­fect sovereignty— see North Korea. You can have free trade, en­forced through max­i­mum sovereignty, which re­sults in es­ca­lat­ing pro­tec­tion­ism and trade wars. Or you can ac­cept cer­tain con­straints in ex­change for open com­pe­ti­tion. “To be truly fair, one has to agree on fixed rules and del­e­gate to a third party for in­ter­pre­ta­tion,” Davis says.

One ex­am­ple of a free trad­ing area with rules, bu­reau­crats, and a loss of sovereignty is the U.S., where the fed­eral sys­tem helps fa­cil­i­tate com­merce among states. Another is the Euro­pean Union, which was born out of the move to­ward a com­mon mar­ket af­ter World War II. Some Bri­tish lead­ers have in­di­cated they’d pre­fer some­thing like the re­la­tion­ship be­tween the EU and Nor­way, which re­mains part of a free-trade bloc known as the Euro­pean Eco­nomic Area—but with­out the free move­ment of peo­ple. The heads of govern­ment of the re­main­ing EU states have taken a hard line. No “cher­ryp­ick­ing,” was how Ger­man Chan­cel­lor An­gela Merkel put it. Bri­tain, they say, can ei­ther ac­cept both the bur­dens and the ben­e­fits of be­ing part of Europe, or nei­ther.

This is more than sim­ple petu­lance. “Even me­dieval Europe found that trad­ing in large mer­chant fairs re­quired the de­vel­op­ment of le­gal in­sti­tu­tions,” Prince­ton’s Davis says. “Sim­ply mak­ing a good deal is not so easy with­out the ac­com­pa­ny­ing rules and bu­reau­crats to man­age the rules.” Trump may be right that free trade has been bad for some Amer­i­cans. But if he wants both trade and trade re­form, he’s go­ing to need more than just a bet­ter deal.

The bot­tom line There’s lit­tle ev­i­dence that Trump’s promised trade wars will im­prove the po­si­tion of U.S. work­ers or con­sumers.

NAFTA

CHINA

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