Beware of False Rationales for Supporting Trade Deals

I am in general a free trader. There is, I would 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 – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – is that there’s much less there than meets the eye.

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

In his recent “State of American Business” speech, Thomas Donohue, the head of the U.S. Chamber of Commerce, warned against economic populism, which he says is really about a push to create a “state-run economy.” Yep – so much as mention rising income 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 No. 1 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 that it would raise total spending. So this is not a short-term economic boost.

Could these trade agreements be 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.

Maybe you still think we should do this. But trade agreements as your top economic priority? Really?

This is so bizarre that it should make you wonder why, exactly, someone like Mr. Donohue would want these deals to be approved. And you have to suspect that the reason is that some of his important clients think that the nontrade 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 U.S. Chamber of Commerce makes a huge priority out of complicated deals, and offers an obviously false rationale, you should strongly suspect that there’s some bad news hidden in the fine print.