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September 20, 2016

So It Turns Out That Trade Agreements ARE in America's Best Interests

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We’re in a political environment right now where, stunningly, in a very short period of time, free trade and the treaties that liberalize trade have gotten a bad rap.

Now, it’s always been true that labor unions were opposed to liberalized trade. That’s because unions are all about protection rather than opportunity, and about extracting rents from government and employers rather than taking advantage of markets to create economic opportunity. It was never true that trade was bad for American workers, but unions have never represented American workers—just the subset of workers who were in unions. The majority of American workers—the ones whose jobs were created by robust trade—could go stuff themselves, or join the union.

What’s new today is the number of disaffected Americans who have been persuaded by the ill-informed that free trade is to blame for their lack of opportunity and advancement.

Donald Trump, of course, is the player in the marketplace of ideas who has so persuaded them, and he is wrong. America benefits from free trade, and so does everyone else [Adam Smith], but free trade must be accompanied by economic growth in order to create new opportunities for those who are displaced by global competition. The problem over the last decade has been inadequate economic growth, not free trade. Not NAFTA.

Trump has also persuaded a number of people that China and Mexico are taking the US to the cleaners, and that somehow trade deals have been the vehicles that have allowed this to happen.

Whereas, in fact, trade deals are the very mechanisms that PREVENT countries like China and Mexico from taking advantage of the US. Trade deals create the rules for international trade, and without trade agreements, there would be no rules.

Just last week the United States government launched a trade enforcement action against China for breaking the rules of the World Trade Organization (WTO). The Obama administration believes, with good evidence, that the Chinese government has been subsidizing its rice, wheat and corn production in violation of its WTO commitments in order to distort the market and undermine competition from American farmers.

It turns out that American farmers are so efficient and productive that they can outcompete Chinese farmers for access to Chinese consumers, unless the Chinese government violates its trade agreements and distorts the playing field.

So let’s state this clearly: It is precisely the trade agreement that requires China to compete fairly, and which gives the US a legal basis to file a complaint. The trade agreement creates a rules-bases system, with standards, obligations, and penalties. Trump and his supporters likely and reflexively oppose the WTO, but the only thing preventing China from predating on US producers is the WTO agreement.

Funny, huh? So the truth about trade agreements is pretty much the exact opposite of what Trump says.

Both free-traders and nationalistic US voters want the same thing: A system where governments do not distort the markets, and where the best, most efficient producers earn their own market access and success. Trade agreements accomplish this as they gradually liberalize trade by lowering barriers and eliminating subsidies. We’re not there yet, but we’re on the way.

The TPP continues this trend of lowering barriers, eliminating subsidies, and establishing clear rules, which is why the TPP is worthy of support and should be celebrated rather than demonized. It’s not perfect, but neither is any treaty or law.

We’ve written before about similar concerns in the global sugar market, where foreign producers are similarly raising barriers against US producers and subsidizing their own producers. In some cases these are violations of agreements like NAFTA but in many cases there is no global governing agreement related to sugar.

What we need is a trade agreement where similar rules are established for the sugar market, where standards and rules are negotiated, and where penalties are detailed and enforced. Once subsidies and barriers have been zeroed out, we can also zero out US supports for the sugar industry. That’s why such a policy has been described as the “zero for zero” solution.

In the meantime, we should support, not oppose, trade agreements that establish a rules-based system, and we should support government efforts to enforce those rules when American producers are being harmed by violations of the rules.

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