Friday, January 27, 2017

Free trade isn't about economics

Politics isn't about policy, so might free trade deals not really be about economics?

Daniel Drezner has an excellent post summarizing a recent burst of media attention concerning the benefits of free trade, and highlighting a bunch of NAFTA's non-economic dimensions. I agree with all of this, and it reminded me of several arguments I made repeatedly when discussing TPP with skeptics.

Firstly, in a narrow short-run economic sense many of these deals simply don't matter that much one way or another. I read the evidence as pointing to a moderate benefit for US GDP (helping especially poor people in the form of lower prices), but many either disagree or don't view these factors as decisive.*

The next big rationale for increasing trade and integration is essentially geostrategy. This is what Drezner describes regarding the US and Mexico, and what many people held up as an argument in favor of TPP (without TPP the Asia-Pacific region will integrate with China instead and institutionalize less-good rules). Another classic example is the European Union: trade integration was started after WWII explicitly to make future conflict unfathomable.

Those two categories of benefit encompass most of what makes free trade desirable. But I want to add an additional point that is more speculative.

A maze (source)

Fundamentally, there is a symbolic benefit in having our government validate and promote cosmopolitan ideals and openness. Maintaining the social narrative of human progress is important, and rejecting attempts to bring us closer together signals a backwards, defeatist attitude.

More concretely, I also think passing deals like TPP would make future trade deals more likely by 'reducing the temperature' of trade politics.

Deals these days are increasingly rare, and also increasingly massive. This has created a positive feedback loop that encourages even more interest groups to try and get in on the lobbying action (i.e. if we're only passing one trade deal every 15 years, you'd best have a say). One side effect of huge complex bloated trade agreements is that literally anyone can find something they disagree with, deepening the structural marketing bias in favor of the status quo.

But--you might say--wouldn't passing a massive kludgy trade deal like TPP positively reinforce the trend towards bigger and more bloated? To some degree probably. But forces would also operate in a different direction, towards smaller and more frequent deals. Passing anything--even TPP--would likely have a net effect of depressurizing the trade debate and shifting expectations for interest groups in a positive direction (showing that deals are possible and reducing the need for marginally-connected groups to get in on each one). In other words, the failure of trade deals does more to crank up the ratchet of political awfulness than does their passage.

I hope the public increasingly comes to recognize the economic, geostrategic and moral/symbolic benefits of free trade and further liberalisation. But the degree to which the debate itself has become mired in a structural trap is underappreciated, and suggests a rationale for supporting the passage of deals regardless of their specific content.

*To be clear: the boundaries of what defines "economic" vs "non-economic" isn't obvious; many of the non-economic benefits in fact operate via formal and informal institutions which shape economic behavior and outcomes (economics→institutions→economics). A classic case is Russ Roberts' argument that free trade can have powerful generational economic benefits, even if it hurts some people alive today.

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