Don't Abandon Free Trade in 2017, Reboot It
Free trade suffered a series of setbacks in 2016. For the first time in decades, Democrats and Republicans aligned in opposition to liberalization. Public opinion also began to shift. Support for free trade fell to historic lows among Republican voters.
How will these developments affect free trade moving forward?
All signs point toward another tough year. But free trade's opponents should not cheer too loudly. Their main target—America's trade agreements—play a vital role in regulating global markets. In an uncertain global economy, these regulations are needed more than ever.
In the wake of the election season, free trade is left without its traditional allies. Previous agreements enjoyed support from strong advocates, especially Republicans in congress. Republicans voted in favor of agreement ratification over 90 percent of the time in the last 15 years. Now pro-trade voices on the right have softened to a whisper.
Looking ahead, the U.S. and its key trade partners will have a hard time generating the political will needed to pursue additional liberalization. It’s no coincidence that postmortems have already been written for TPP as well as TTIP, America's pending agreement with the EU.
Donald Trump and his supporters welcome this news. Dismantling trade agreements is hailed as a victory for U.S. businesses and their workers.
Their enthusiasm is misplaced. Trade agreements provide the U.S. with the best tools for promoting access to foreign markets while insulating American firms from discriminatory policies abroad.
Contemporary protectionism rarely comes in the form of traditional tariffs. Instead, governments utilize a complex array of regulatory policies to limit market access. These regulations help govern the production, packaging and labeling of goods. They also relate to health and safety standards.
That sounds like a good thing. Governments should be able to protect their markets from products that are poorly made or dangerous. But regulatory systems work best when standards are transparent and enforced consistently across countries. This is precisely what trade agreements set out to do. They outline the conditions under which states can reasonably restrict trade.
Critics might ask why we need trade agreements to do this job. It's because trade agreements actually raise the regulatory bar.
Consider whether it's better for countries to make their own rules. It doesn't require much imagination. The U.S. has already suffered the adverse effects of trade partners using regulatory barriers as veiled protection. One study estimates that the costs of the EU’s barriers to U.S. poultry are equivalent to a one-hundred percent tariff. And other agricultural goods suffer a similar fate. These numbers are non-trivial. Together, EU members comprise America's 2nd largest export market and the 4th largest recipient of U.S. agriculture products.
The story is the same in other parts of the world. America's agreement with Korea was designed largely to address regulatory issues that impeded U.S. agricultural exports. One year after ratification, U.S. exports in certain agrarian industries doubled. This was a direct result of the harmonization of standards.
Going it alone, as Trump encourages, is not the answer. Critics of trade agreements allege that international trade law infringes on American sovereignty. They prefer a situation in which countries set their own rules. But doing so is expensive, less transparent, and provides no guarantees of regulatory consistency. Conversely, trade agreements commit countries to agreed-upon standards. This reduces uncertainty and locks in access to foreign markets for American firms.
Of course, trade agreements are not perfect. These benefits they provide little comfort to workers whose individual incomes have suffered due to globalization. In fact, there is a growing sense of economic disenfranchisement in the U.S. and abroad. Individual incomes are stagnant and job security continues to decline across a variety of manufacturing and services industries. Viewed in this light, the political backlash against trade is no surprise.
President Obama recognized these difficulties last fall when he addressed the United Nations General Assembly. He acknowledged growing inequality and called for a “course correction” to ensure that too many workers are not left behind.
But the U.S. should not steer too far from a rules-based system.
The solution is to reform trade deals, not to abandon them. Trade agreements ought to be strengthened to ensure fairer—not just freer—trade. This can only be done with through a commitment to deeper cooperation among countries. It means greater dedication to designing comprehensive, mutually agreed-upon rules and regulations.
Trump’s platform, on the contrary, calls for a full-scale retreat. He promises to raise tariffs and shred America’s trade deals. That strategy is counterproductive. It will result in trade wars that restrict American export opportunities that leave firms vulnerable to ad hoc, unpredictable policy shifts abroad. It’s a mistake to think this is better for U.S. firms and their workers.