Thursday, 11 July 2013

The uphill struggle for free trade

I was very pleased to read that we've signed a free trade deal with Taiwan. I know that bilateral deals aren't as effective as regional or global multilateral deals, but with global WTO talks on the never-never and the Trans Pacific Partnership still over the horizon somewhere, it's worthwhile bagging what we can get, especially with strong performing economies like Taiwan.

It is rather depressing, though, to see how badly the case for free trade still struggles in the marketplace of public opinion. If you google references over the past month to 'Trans Pacific Partnership', for example, you will find that the coverage is dominated by hostility.

The first page of results today included "The Trans-Pacific Partnership is a global corporate coup that makes corporations more powerful than governments and undermines our national sovereignty", "If the TPP is adopted the door will be open wider for human rights and environmental abuse", and "the TPP is a major power grab by large corporations...the intention of the TPP is to enhance and protect the profits of medical and pharmaceutical corporations without considering the harmful effects their policies will have on human health". Maybe there is indeed something wrong with the negotiating process for the TPP or its agenda, but frankly it wouldn't matter for many people. Every free trade initiative faces an uphill struggle in many people's minds.

There was, for example, an article in the latest May Papers & Proceedings issue of the American Economic Review, "Economic Experts versus Average Americans", which compared the views of the American public with those of a panel of expert economists across a variety of policy issues of the day. Asked whether "On average, citizens of the U.S. have been better off with the North American Free Trade Agreement than they would have been otherwise", only 46.2% of the public agreed, and another 15.4% weren't sure; 38.4% thought NAFTA made things worse. Among the economists, on the other hand,  94.6% thought NAFTA was a good idea, and only 5.4% were unsure. Not a single economist thought NAFTA was a bad plan.

The economist result is not surprising: we all get taught early on in our economics courses about the win/win nature of trade. We know that if the Chinese specialise in T-shirts and we specialise in butter and we trade with each other, there will be more aggregate T-shirts and butter produced than either of us could manage on our own, or - and maybe this is a better way to engage people's minds about it - the same amount of T-shirts and butter, but resources freed up to produce something else as well.

We can even put numbers on it: look, for example, at the analysis the Centre for Economic Policy Research in London has recently carried out on the potential benefits of a trade agreement between the EU and the US (press release here, full report here). A big deal could be worth "an extra €545 [NZ$900] in disposable income each year for a family of four in the EU", and beyond the sizeable benefits to the US and the EU it would also increase GDP in the rest of the world by almost €100 billion [NZ$165 billion]. To put that in context, that's around 75% of our nominal GDP.

Some of the public reaction isn't that surprising either: we know how the political economy of the thing tends to play out. The 99.9% of the population who benefit from cheaper imported T-shirts are a widely dispersed group of individually minor beneficiaries, whereas the 0.1% of the population who are threatened domestic T-shirt manufacturers are a highly vocal, highly motivated pressure group.

That said, you can't help feeling that there is more that us economists could do to fight the good fight in the marketplace of ideas for a policy that raises incomes everywhere, and is probably the single biggest escape route from poverty for the poorest countries amongst the poor.


  1. I love free trade. I'm worried about TPP because I put reasonable odds on that we'd grant a bunch of American requests on copyright to get the deal, then find our dairy imports blocked anyway.

  2. Thanks Eric. I don't know the details of TPP - and that seems to be one of the main beefs about it, that only a select few insiders have been shown the guts - but as a general point I too don't like the way special interests have tended to use free trade negotiations as a Trojan horse for their interests. A 'clean' agreement (and preferably one where 'everything's in unless specifically excluded' rather than 'only the things included are freed up') trumps everything else


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