Why We Don’t Need a Moratorium on Trade Deals Like the TPP
By William Reinsch:
On Sunday, Paul Blustein, a distinguished journalist formerly with the Washington Post, published a piece titled, “Why We Need a Moratorium on Trade Deals Like the TPP.” He makes many good points in it but nevertheless comes to precisely the wrong conclusion. We don’t need fewer agreements like TPP; we need more of them.
The essence of his argument is that the pro-trade “establishment” underestimated both the public opposition to TPP and the number of people who will be disadvantaged by it and is once again retreating into the strategy of “hunkering down” and waiting for the opposition to blow over, i.e. after the election, before restarting its traditional sales pitch on the merits of open trade. It would be better, in his view, to recognize the magnitude of the opposition this time around (in contrast to Ross Perot, Pat Buchanan and others in the past) and abandon any future free trade agreement (FTA) efforts in favor of writing better rules at the WTO for the entire multilateral system.
Blustein is careful not to reject the long-standing economic orthodoxy that trade is good for jobs and growth. Instead, he argues that plurilateral trade agreements have diminishing market access returns because tariffs are already so low, and that these smaller gains are dwarfed by the rising political costs exemplified by both Donald Trump and Bernie Sanders. Those costs, he contends, are exacerbated by our failure to develop an adequate social safety net for those hurt by trade (he’s right on the last point — the safety net is something I’ve written about before and will be writing about again shortly).
Unfortunately, his analysis of the problem and his proposed remedy has several important deficiencies. First, he is more than willing to subordinate what he acknowledges would be good public policy to the vagaries of public opinion. There is never a shortage of politicians willing to do the same thing, but the public should expect, and demand, better leadership from them. If trade agreements are good things, which Blustein seems to accept, then we should be expecting our leaders to actually lead — to defend trade and explain why it is good rather than surrender to the dark side. The current campaign is hardly an example of nobility in public policy on many issues in addition to trade, but I think we ought to do better than to simply say, “give up.”
It is also worth keeping in mind that public opinion on trade is a complicated question. As recently as this spring, polls showed majority support in both parties for trade (ironically more on the Democratic side than the Republican side). That should not be construed to mean support for TPP in particular, but it should serve as a reminder that the public is volatile on the issue and has shown some sophistication over the years in parsing the issue — welcoming the positive effects of trade and worrying about the negative effects.
Second, Blustein underestimates the difficulties facing the WTO. He is correct that the best step forward would be multilateral agreement(s) on better rules for the system — multilateralism is always the first best option when it comes to trade — but he seems to ignore the fact that the current enthusiasm for smaller FTAs arose precisely because the WTO for fifteen years has been unable to produce the kind of agreement he calls for. Managing the trade system is a bit like trying to channel a river — if you block it in one direction, the water doesn’t stop flowing; it simply finds another route. FTAs have become that alternative. Suggesting at this point that we go back and try again is a reminder of Einstein’s definition of insanity — trying the same thing over and over and expecting different results.
To his credit, Blustein attempts to get around that problem by suggesting a new round need not be about market access but should instead be about new rules, particularly new rules for dealing with China, whose behavior in the trading system is a growing source of frustration for practically everybody. It is true that market access issues, in both goods and agriculture, were largely responsible for sinking the Doha Round, but those disagreements also masked significant differences on rules issues as well. To get a sense of some of them one need only look at the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the U.S. and the EU. There market access issues are relatively small (except for agriculture), but the rules gaps not only remain deep but the demagoguery surrounding them is significant.
While market access issues are significant for the sectors directly affected, rules issues strike at the heart of how countries organize their societies, including: how to treat state-owned enterprises; what level of intellectual property protection to provide; how to handle digital trade issues and the inevitable intrusions into privacy they create; and what standards to maintain for food safety, labor, and environment. If we have learned anything from the TPP and TTIP negotiations, these issues are even harder to resolve than market access. The bold approach he calls for, in contrast to the more modest route the WTO seems to be embarking on, would — I fear — run aground just as the Doha Round has.
In suggesting such an approach Blustein has identified the dilemma the world trading system currently faces. The developed countries see rising opposition to further trade liberalization for the reasons he mentions, and as a result have been unwilling to continue making concessions to sustain a liberal trading system. Instead, the developed countries, led by the U.S., have called on the emerging economies to assume a larger share of the burden for maintaining the system commensurate with their growing economic power. Those countries, particularly China and India, have refused to do that except on specific issues like trade facilitation. The resulting gridlock has pushed countries that want to liberalize further in the direction of FTAs.
Blustein calls for a “bolder” approach in Geneva but fails to explain how to do that in a way that would lead to a different result than we experienced in Doha. I also prefer a bolder approach — but one here at home that entails a stronger defense of the benefits of trade agreements and less pandering by our politicians.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative. Click here to view the original article.