Trade Agreements as Diplomacy

Trade Agreements as Diplomacy

In terms of economic progress, today’s capitalist-based format, which has triumphed in many corners of the globe, is preferable to an imaginary world full of closed, state-run economies and Soviet imitators. However, the case for certain trade policies, regimes, and norms is often overstated by market liberals who rush to link them directly with fundamental market principles and the ideals of competition and “free trade.” In fact, these fundamentals and principles are often partly or completely cast aside by many of the international state-capitalist arrangements that exist today—yet they are still lauded by free marketeers. Indeed, regardless of how they’re sold to the public or the debate is framed, many “free trade” agreements and openings of “markets” have primarily been vehicles for states to pursue social and economic plans that have less to do with liberalizing the way everyone can do business in accordance with theories about the general benefits of free trade, and more about pushing forward particular diplomatic, geopolitical, and corporate agendas. Market liberals are too quick to defend the status quo, dismissing criticism of existing trade arrangements as an attack on the ideal of global markets itself. And, they tend to focus mostly on attacking protectionist and nationalist rhetoric. They ought to be more critical of many aspects of the current state-capitalist status quo.

Let’s Stop Calling Clubs Spades

Any market liberal should pause before referring to a set of  government policies that creates and moderates the framework of international commerce as “free trade.” Although many of today’s state-capitalist trade regimes have been, or continue to be, sold to the public by government and corporate power with textbook rhetoric that frames every move as the opening or creation of free markets, increasing privatization and competition, or allowing the forces of supply and demand to work “naturally” to create jobs and a more prosperous economy for all, underneath the hood of the actual policies is a much more complicated story. Here, instead of the enablement of individuals to truly conduct business and exchange freely, we often find “highly protectionist agreement[s] with…complex mixture[s] of liberalization and protection designed to guarantee investor rights” or push specific government policies or agendas. 

Paul Krugman said as much as this at the beginning of the public discourse storm surrounding The North American Free Trade Agreement (NAFTA) in 1993. He addressed the rhetoric and posturing presented to support or decry NAFTA, and reconciled that with the actual paperwork of the treaty and the realities of the political climate at the time. Ultimately, Krugman went on to point out that NAFTA was “not about jobs,” and “not even about the economy.” Rather, at that time it was more of a symbolic foreign relations move  to continue the United States’s mission to warm up its relationship with Mexico—the latter of which was already pursuing its own “path of trade liberalization…since the mid-1980s” anyway. Krugman likened the specific changes NAFTA would make to little more than an “extra wind” pushing from behind or against the front of a car going down the highway. 

In any event, NAFTA—recently superseded by new agreements—is a classic case where the Canadian and American public were presented a policy story framed by media and political elites that proponents of free markets would have had little or no reason to be against in principle. What was touted about NAFTA then is how it is described superficially now: An “international agreement [between] Canada, Mexico, and the United States” that aimed to “eliminate all tariff and non-tariff barriers of trade and investment between the United States, Canada and Mexico.”

Unfortunately, the framing illustrated above is as far as most people get when thinking about arrangements like NAFTA. Many market liberals I know have placed the agreement in their larger arsenal of stories about global free trade and markets. However, the realities of NAFTA are rarely seriously discussed by anyone but specialists and economists, and going a little further in virtually any direction with some basic questions about NAFTA’s structure (or other arrangements like it) plainly shows the gaps between the rhetoric of whiteboards and seminars on the one hand, and the realities of government- and corporate-constructed trade planning in documents on the other. Although many sections of these documents are barely understandable to anyone except those who specialize in a particular kind of legal jargon, what is clear is that you won’t encounter anything about the unhindered flow of goods and services, even playing fields, or other free market attitudes you find in The Wealth of Nations. The U.S. Customs and Border Protection website hints at this when it lifts language and information directly from NAFTA rather than a PR firm’s script by discussing “preferential tariff treatment” for certain goods and industries. Indeed, government and corporate preferential treatment and privileges is what we’re really talking about. 

Take Canada’s dairy system as one chapter in the story of the so-called free trade regime between Canada, the USA, and Mexico. This industry “falls outside” of NAFTA and ensures Canadian governments can continue to play with quotas, minimum prices, and high tariffs on dairy products. Proponents of shielding large industries and established players from market forces often stand on the idea of a need for stable prices and jobs, but whether there is merit to that claim is a separate issue and already points to the conclusion that we’re not talking about free trade—at least not in this area.

Indeed, this is but one example, and many are eager to brush it away as just that: the exception among otherwise glorious arrangements and tales about global capitalism. But you can continue down this line to find state and corporate interests having their way many times over with market signals and activity where it suits them. 

Another example: Mexican tomatoes. It turns out that Mexico was “a primary source of U.S. tomato imports.” A student of market principles should recognize this as a signal that market forces were working to some degree, and individual consumers and businesses were purchasing the fruit from Mexican sources and suppliers they ultimately preferred. Unfortunately, those suppliers weren’t American, and “nearly two years after NAFTA took effect…the U.S. imposed a mandatory minimum price on Mexican tomatoes.” It seems that one of the eager signatories to NAFTA didn’t get the news and political memos about free trade. Perhaps they read, understood, and leveraged the regulations and holes in the documents themselves since they started using the battleground of tomatoes to settle the score of “a trade dispute.” So, in 1996 the United States “filed an antidumping investigation against its Mexican counterpart.” “Since then, a number of similar price restrictions have been imposed on Mexican tomatoes” including one signed in 2013 that “raised the floor import prices (which differ in winter and summer seasons) by 43 percent.” It seems that although a preference for Mexican tomatoes would do fine on our comparative advantage charts, it does not do for the particular interests and elites who arrange “free trade.”

As the example above also shows, tariffs aren’t the only thing to be considered in the “free trade” games of global commerce. “Dumping” is one of many interesting grievances from state-capitalist planners who say they are proponents of trade arrangement that benefits all. Again, you don’t have to be an economist to understand that producing goods more cheaply than others (regardless of how) means you can charge lower, more competitive prices. Yet policies and regulations on dumping are nevertheless used to regulate the flow of goods, ultimately as “a tool of industrial policy aimed at fostering the interests of inefficient industries” in countries facing too much competition—something good for the general public, and bad for particular interests. 

Indeed, it turns out that what “may well be an indication[s] of foreign comparative advantage” that consumers at large can actually benefit from is not exactly the kind of thing that makes governments and entrenched industrial players jump up and down with excitement—it “appears to be unfair trade” to them. Market liberals may be happy to point out falling tariffs, but these decreases, and the flow of goods that result from other adjustments, have often “coincided with [increases] in the number of antidumping measures” and other ways planners use to arrange the economy. 

In short, the checkered past of state-arranged trade policies is often sorted by proponents and opponents of “free trade” agreements and arrangements as either “pro” or “anti” free trade respectively. However, past agreements like NAFTA and other state polices demonstrate reality is often a lot more complex and misleading than that, and the theoretical dichotomies are not so easily interchanged with the realities of the policies in play. 

Will It Ever Actually Be About Free Trade?

Focus on the dichotomy between free trade and protectionism fiercely re-ignited when Donald Trump rode to an election victory partly based on his protectionist “America first” rhetoric. Those in support of the tenets of global free trade on principle were concerned that a loose cannon in the White House could destroy the state of global capitalism with executive orders and policy based on an obvious deficiency of economic understanding. The other side went straight into nationalist-protectionist talking points, expressing contempt for the way the rest of the world had somehow arranged itself in a way to take advantage of Americans and rip off their economy. Most of the public was left to ponder at this superficial level provided to them by the media as well as corporate and government elites. They took a side in the debate based partly on their perception of what constituted fairness, and mostly on what they truly believed would drive economic benefits.

Except for the more technically interested and specialized circles, most of these public policy debates were dealing with myths on either side—one about the glorious state of trade and free-market capitalism on the one hand, and the other about free trade allowing evil outsiders to run scams against Americans. Vital questions remained untouched, perhaps most importantly: What are the actual policies and frameworks for trade that people are standing on top of to debate their ideals? When it comes to, say, trade with China, are we really talking about the choice between Donald Trump destroying Smithian arrangements, or predatory manufacturers trying to destroy the livelihood of the American working class? Or are we discussing something else entirely? Indeed, today, we can still spot distance between the debate about the principles of opening markets and increasing trade with the supposed practice of it.

It is true that Donald Trump doesn’t seem to understand what a trade surplus or deficit really means, nor does he seem to comprehend who ultimately ends up paying for tariffs. These are points that deserve to be made loudly. However, here again, in the rush to defend trade and free trade ideals, and educate the world about the dangers of protectionism, many seemed to miss important opportunities to create an alternative to the prevailing false dichotomy that would have harshly criticized both protectionists and those looking to preserve or double-down on the current order where it is deeply flawed.

For example, in discussions on trade with countries like China, one shouldn’t scoff any time someone begins to address what is wrong with current arrangements and dismiss them by sending them off to read Hayek. Yes, Donald Trump has successfully made “unfair trade” a slogan that represents the nationalist and protectionist ideas he peddled for votes, and has framed himself as someone attacking a clean capitalist order, but more credible and serious people like Canada’s former Prime Minister Stephen Harper have commented on the realities of the political economy of China’s trade relationship with the rest of the world. He cautions that there is “not a good economic relationship” between China and the United States (and the West), and correctly points out that we have to be careful projecting our idealist talking points about trade onto what is truly going on in trade arrangements between the one-party state and many other countries—we must acknowledge that we’re not talking about a situation that can properly be regarded as free trade. 

Unlike Trump, Harper recognizes and understands the nature and basics of trade deficits and international commerce, yet notes that trade between American and Chinese companies relies on heavily manipulated and planned frameworks and agreements that control “access to a market and [restrict access] to [the Chinese] market.” And, in a manner a little unorthodox for a former head of state who was in many ways quite orthodox, he plainly notes that “the current trade relationship with China is beneficial to a few well-connected American corporations who get to operate in China, but [not] beneficial to the [American] economy as a whole,” and that “the challenge is that the whole nature of the Chinese economic structure and the nature of the government’s role in the economy raises questions as to whether they can really truly open their markets in the way we’re expecting.” In other words, here again, the economic realities surrounding China operate in line with sets of particular government and corporate interests and not in a truly market-oriented way that the general public can most benefit from.

Even if Harper is only partially correct, anyone who takes market principles seriously should not hesitate to criticize the very real ways they are completely violated, and not file the ongoing political and corporate games away as glitches in the system rather than benefits purposefully arranged and enjoyed. The circumstances surrounding trade with China is but one example, and defending this kind of status quo and those who benefit from it on both sides is more complex than often presented. The scope of inquiry needs to extend beyond “pro” or “anti” free trade idealist talking points, and delve into the realities of the global capitalist system that exists today.

Criticism of Real-Life Capitalism Is Not an Endorsement of Non-Market Alternatives

To be absolutely clear: The status quo of global trade today is preferred to many alternatives, especially one in which all countries aggressively pursue hyper-nationalist, protectionist economic regimes with aims of self-sustaining internal economies—the would-be silliness of Canadians trying to grow bananas in greenhouses is a flippant example I often use to illustrate the stupidity of the idea. However, that’s ultimately an unfair dichotomy and a lazy framing about the realities global markets, the current political arrangements, and the actual alternatives on the table. The question we should be asking ourselves is how to simultaneously understand and defend the status quo as a better alternative to something worse, and seriously challenge it where it violates market principles and fundamentals with any policy or proposed arrangement pushed for by governments and corporations. 

The liberal who is a serious proponent of trade and markets needs to be incredibly clear about what they often point to as evidence for their principles at work. In many cases they at best can prove that certain positive tendencies of the market are buried beneath the surface of corporate and state planning meant to further particular interests. Any more than this, they risk incidentally defending arrangements, plans, and policies that violate those same principles and pervert them just as badly as the opposing forces they decry. And, perhaps most importantly, that will just mean that the people we’re trying to make our positions attractive to won’t receive the much-needed representation of a consistent and serious stance for market principles.

Featured Image is Market in Tripoli, by David Stanley