NYT: Suspicious Nonsense on Trade Agreements

January 30, 2015

I am in general a free trader; there is, I’d argue, a tendency on the part of some people with whom I agree on many issues to demonize trade agreements, to make them responsible for evils that have other causes. And my take on both of the trade agreements currently under negotiation — Pacific and Atlantic — is that there’s much less there than meets the eye.

[Reposted from The New York Times  |  Paul Krugman  |  January 19th, 2015]

But my hackles and suspicions rise when I listen to the advocates.

Tom Donohue, head of the US Chamber of Commerce, warns against economic populism, which he says is really a push to create a “state-run economy.” Yep — so much as mention rising inequality, and you’re Joseph Stalin (unless you’re Mitt Romney.) But what really gets me is the Chamber’s supposed agenda for growth. Topping the list — the number one priority — is completing those trade agreements.

This is absurd, and disturbing.

Think about it. The immediate problem facing much of the world is inadequate demand and the threat of deflation. Would trade liberalization help on that front? No, not at all. True, to the extent that trade becomes easier, world exports would rise, which is a net plus for demand. But world imports would rise by exactly the same amount, which is a net minus. Or to put it a bit differently, trade liberalization would change the composition of world expenditure, with each country spending more on foreign goods and less on its own, but there’s no reason to think it would raise total spending; so this is not a short-term economic boost.

But maybe it’s about the supply side, about raising efficiency and productivity? Well, standard economic models do say that liberalization should have that effect in principle — but the effects are only large when you start from high levels of protectionism. Cutting average effective tariffs (including the effects of quantitative restrictions) from, say, 40 percent to 10 percent can be a fairly big deal. But cutting from effective protection of only a few percent, which is where most of the world is now, isn’t going to give you a boost that you’ll be able to tell from statistical noise.

Maybe you still think we should do this. But trade agreements as your top economic priority? Really? That’s so bizarre that it should make you wonder why, exactly, the likes of Tom Donohue want these deals. And you have to suspect that the reason is that some of his important clients think that the non-trade aspects of the deals — stuff like intellectual property protection — will yield them a lot of monopoly rents.

There are reasons to support these deals and reasons to oppose them. But my immediate take is that when the US Chamber of Commerce makes a huge priority out of complicated deals, and offers an obviously false rationale, you should strongly suspect that there’s bad stuff hidden in the fine print.

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