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Are There Rules for Trade?


Barack Obama has been lobbying Congress for Trade Promotion Authority (TPA), also known as “fast-track authority,” so the executive branch can work in secret on trade deals before submitting them to Congress for a quick up-or-down vote with limited time for debate, no provision for amendments, and no possibility of a Senate filibuster.

The president has made passage of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) a top priority of his second term. The TPP is a proposed trade agreement between the United States and the Pacific Rim countries of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The TTIP is a proposed trade agreement between the United States and the 28 member states of the European Union. Opponents of these two managed-trade agreements have referred to them as “ObamaTrade” and “NAFTA on steroids.”

During a speech at Nike headquarters in Oregon last month, Obama spoke of his economic agenda. He included trade agreements as “a vital piece” of his “middle-class economics” of making sure everybody has got a good education, women are getting paid the same as men for doing the same work, workers have sick leave and family leave, and the minimum wage is increasing across this country. The “right” kinds of “smart” trade agreements are “not a contradiction to middle-class economics,” but “part and parcel of it,” said the president.

Obama specifically mentioned the TPP. It “reflects our values.” It’s “the highest-standard, most progressive trade deal in history.” The TPP is “a different kind of trade deal,” one that will “open the doors to the higher-skill, higher-wage jobs of the future.” And in addition to helping to “eliminate barriers” and “simplify customs,” it also has “strong enforceable provisions” for workers, to prevent “things like child labor,” and the environment, “to prevent wildlife trafficking, or deforestation, or dealing with our oceans.”

So, the TPP, like all other managed-trade agreements, is not at all just about trade. Under the TPP, as the president acknowledged in his speech, “Vietnam would actually, for the first time, have to raise its labor standards. It would have to set a minimum wage. It would have to pass safe-workplace laws to protect its workers. It would even have to protect workers’ freedom to form unions.”

Support for and criticism of “fast-track authority,” the TPP, and the TTIP can be found across party lines. Sen. Elizabeth Warren is a leading Democratic critic of the president’s trade policy. Conservatives writing for the New American, a publication of the John Birch Society, are highly critical of the TPP, and all trade agreements, even as conservatives at the Heritage Foundation support the TPP, just as they supported NAFTA.

I have written in the past that managed trade is not free trade and that protectionism is central planning. What I want to focus on here is whether there are rules for trade. I address this because of something Obama said in his speech at Nike:

We have to make sure America writes the rules of the global economy. And we should do it today, while our economy is in the position of global strength. Because if we don’t write the rules for trade around the world — guess what — China will. And they’ll write those rules in a way that gives Chinese workers and Chinese businesses the upper hand, and locks American-made goods out.

Are there rules for trade?

When Obama mentioned rules for trade, he was not referring to the honesty, reliability, timeliness, and adherence to contracts that all parties expect when they engage in trade. For example, paying for goods received, paying on time, supplying the correct quantity and quality of goods, and supplying the goods on time.

The president was referring to the United States’s overseeing the drafting of trade agreements written in legalese with hundreds of pages and thousands of rules that have nothing to do with lowering or eliminating tariffs, reducing trade barriers, or increasing international trade.

There are “rules” for trade, but they are not what the president and supporters of his trade policy in both parties think. And they are contrary to the misconceptions about trade held by conservative and liberal opponents of free trade.

Not in any particular order, here are some “rules” for trade.

Trade is simply engaging in commerce. What we call “foreign trade” occurs when some entity in the United States engages in commerce with some entity in another country. It should not be regarded as any different from what happens when two entities in the United States engage in commerce.

Trade is between individuals and businesses, not countries. Although people often talk about the United States trading with Germany, Japan, or Brazil, foreign trade really occurs just when individuals or businesses in one country engage in commerce with individuals or businesses in some other country.

Trade does not result in winners and losers. Trade is actually a win-win situation. No party loses anything by trading — that is, engaging in commerce — with another party in another country. If trade were not mutually beneficial to both parties, it would not take place in the first place.

All trade is fair trade. “We sell only fair trade coffee,” says a sign at a coffee shop near my house. But real fair trade occurs just when two parties voluntarily engage in commerce — no matter what countries they are in. Trade is fair when it doesn’t involve government subsidies, crony capitalism, or a government import-export bank.

Trade does not destroy jobs. It expands the size of the market. No one says that a company in Florida that purchases goods from a company in Georgia destroys jobs in Florida. There is not a finite number of jobs. It is government regulations, mandates, and taxes that destroy jobs.

The trade deficit is a government accounting fiction. When the United States runs a trade deficit with China, it shouldn’t be of any more concern than when one state or city runs a trade deficit with another state or city. It doesn’t matter whether entities in the United States buy more from entities in another country than entities in that country buy from entities in the United States. Governments in either country shouldn’t even be tracking such things.

Free trade is trade that is free of government interference. This means not only tariffs, but quotas, barriers, sanctions, regulations, restrictions, or dumping rules.

Trade does not need to be managed. It needs no trade organizations, trade agreements, trade treaties, or government oversight. Protectionism is simply a form of central planning.

Trade is ultimately about freedom. It is not necessarily dependent upon economic efficiency, exchange rates, capital mobility, transaction costs, factors of production, or the distinction between absolute and comparative advantage. There are no conditions that have to be met before trade can beneficially take place.

The U.S. government should quit stifling businesses and intervening in the free market. It should lower its trade barriers and encourage other countries to do the same.

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