Are trade deals bad for America? Part 1.
Recent criticism of US trade policy focuses largely on America’s free trade agreements (FTAs).
Trade deals face opposition from both ends of the political spectrum. On the right, conservatives increasingly argue that FTAs infringe on US sovereignty. According to this logic, agreements tie America’s hands to liberalization, preventing the US government from protecting domestic firms and workers.
On the left, some argue that FTAs don’t go far enough, at least in terms of enforcing meaningful labor regulations and environmental standards.
Uniting both positions is the simple claim that trade agreements leave Americans worse off. Individual incomes are declining, jobs are being lost, and some portion of the labor force is being left behind.
Are these criticisms fair? What are the pros and cons of trade agreement membership?
AMERICA'S TRADE DEAL PORTFOLIO
The US is involved in fewer trade deals than one might expect, particularly given the role America played in creating the multilateral trade system (GATT/WTO). Not including the WTO, the US is a member of fourteen agreements involving twenty countries, mainly clustered in Latin America and the Middle East.
Most of these agreements were formed in the last twenty years. Only NAFTA (1994) and the deal with Israel (1985) date back further.
Note that the US does not have a bilateral arrangement with either China or the European Union. Prior to Trump winning in 2016, the US was engaged in slow-moving negotiations with Europe (Transatlantic Trade and Investment Partnership). The TTIP process is now delayed indefinitely.
The list of America’s formal trade partners says something important about these deals. FTAs are not solely about trade promotion. They are also a diplomatic tool used to advance America’s broader foreign policy interests. The US does not do a tremendous amount of trade with countries like Jordan, Oman, and Bahrain. Rather, trade deals with countries shore up America's diplomatic foothold in an important region.
Similarly, much of the worry about the United States leaving the Trans-Pacific Partnership was that it signaled a diplomatic retreat from Southeast Asia. Leaving TPP, the argument goes, created a void into which China could now step.
FTAs' diverse goals are reflected in their broad mandates.
WHAT DO THESE DEAL CONTAIN?
At their core, FTAs are treaties in which members grant reciprocal market access to one another. For several decades, these deals were little more than lists of tariff reductions.
FTAs became far more complex as globalization accelerated. Trade agreements now cover a wide variety of issues. These include labor rights; investment promotion; intellectual property rights; labor mobility; environmental protections; health and safety standards; and more.
America’s deals are no exception. In fact, US FTAs are some of the lengthiest — and most highly legalized — in the world. Before Trump withdrew from the Trans-Pacific Partnership, that agreement had swelled to over 5,000 pages.
That doesn’t mean trade policies take a backseat. The US is especially concerned about the rules governing anti-dumping, a policy the US relies on heavily to protect industries such as steel. The US government also protects domestic industries through subsidies, price supports, and other related mechanisms. These policies are controversial and have been the subject of numerous WTO disputes. However, they not strictly illegal under most FTA rules.
Modern FTAs, then, cover a tremendous amount of ground. However, not everyone agrees they are fit for purpose.
The next post addresses the pro and cons of these deals.