The Muddled Case for Trade Agreements

PRINCETON – With global trade negotiations deadlocked for years, regional agreements – long a dormant route to trade liberalization – are back with a vengeance. The United States is at the center of two mega-deals that could shape the future path of world trade.

The Trans-Pacific Partnership (TPP) is further along, and involves 11 countries, besides the US, that collectively produce as much as 40% of global output; but China, crucially, is not among them. The Transatlantic Trade and Investment Partnership (TTIP) with the European Union has an even more ambitious reach, promising to join two giant regions that together account for half of world trade.

Trade agreements have long stopped being the province of experts and technocrats. So it is not surprising that both initiatives have generated significant and heated public discussion. The perspectives of proponents and opponents are so polarized that it is hard not to be utterly confused about the likely consequences. To appreciate what is at stake, we have to understand that these deals are motivated by a mix of objectives – some benign, others less so from a global perspective.

On the economic front, the trade agreements’ defenders tend to talk with both sides of their mouth. Reducing trade barriers is said to promote economic efficiency and specialization; but it is also supposed to increase exports and create jobs by increasing access to trade partners’ markets. The first of these is the conventional comparative-advantage argument for trade liberalization; the second is a mercantilist argument.