Without Free Trade, U.S. Consumer Interests Best Represented by EU Negotiators in the Transatlantic Trade Talks

Today marks the official commencement of the much anticipated Transatlantic Trade and Investment Partnership negotiations in Washington. An eventual agreement could eliminate tariffs and curb superfluous rules and regulations that impede commerce and raise costs for businesses and consumers in the world’s largest economies. Those prospects make the effort worthy of our attention and, possibly, our support, but one thing should be clear from the outset: the negotiations are less about free trade than they are the latest rejection of its virtue.

Among economists, businesspeople, and policy scholars, there is near unanimity that international trade is a good thing. Many even call themselves “free traders.” But self-identifying as a free trader in Washington usually means that one supports free trade over there (in other countries), and not necessarily over here, in the United States. What passes for free trade advocacy these days is endorsing the USTR’s official negotiating objectives, which condition liberalization at home on the foreign market access gains obtained for U.S exporters. And that ain’t free trade.

Arguably, opening foreign markets should be an aim of trade policy, but real free trade requires liberalization at home. The real benefits of trade are measured by the value of imports that can be fetched for a given unit of exports – the so-called terms of trade. Trade barriers at home raise the costs and reduce the amount of imports that can be purchased with a given unit of exports. Trade barriers impoverish the locals, yet holding firm to those domestic barriers, while insisting that foreign markets open wider, is the USTR’s negotiating strategy. Indeed, that’s almost every government’s negotiating strategy. It is the crux of reciprocity-based trade negotiations, which – at its core – defies logic and rejects free trade.

Despite globalization and the economic interdependence it has spawned, the reciprocal “concessions” model of trade negotiations remains the favored approach to liberalizing trade even though it requires negotiators to pretend that imports and competition are undesirable in the home market. That puts negotiators at odds with their own consumers, whose interests are better served by the offensive agenda of the other government’s negotiators.

U.S. consumers and firms would be better off if we simply undertook our own reforms – on tariffs, regulations, and other policies that affect competition in the United States – regardless of whether other governments want to continue to penalize the businesses and consumers in their jurisdictions. We don’t need consent from Brussels to implement the reforms that would make our economy more efficient. Our own barriers represent costs to our own businesses and individuals, which can be eradicated without need of negotiations with foreign governments.

That such thinking remains heterodox is testament to the strength of sports analogies (“Us vs. Them”) and the success of business groups, labor unions, and other NGOs at convincing the media and the public that the interests of Americans are aligned with their own (“What’s good for GM…”). In fact, they’re quite divergent.

Why should the average American care about trade agreements if the spoils accrue to businesses in the form of export revenues? The better selling point is that import competition brings greater variety, better prices, best business practices, and inspires domestic companies to be more accountable and responsive to consumer demands. Import competition breeds innovation. The more compelling anecdote is that Americans are no longer forced into Ford Pintos, Chrysler K-Cars, AMC Pacers and other relics of an era before foreign competition put an end to the domestic auto oligopoly’s tyrannical product and pricing practices.

Presumably, Americans would care more about seeing that same competitive dynamic play out in the commercial aviation sector, where foreign carriers are prohibited from serving routes between U.S. cities and where service suffers, than they care about seeing pharmaceutical patents extended to 12 years. But airline competition – an aim of the European negotiators – is on the USTR’s thwart list. Likewise, the 93 year-old Jones Act, which prohibits foreign-flagged vessels from transporting goods between U.S. ports, forces Americans to subsidize less competitive U.S. shippers and their unions through the higher prices they must pay for delivered goods. Again, shipping reform is on the European agenda but, despite the efficiencies reform could bring, is on the USTR’s thwart list. Europe’s desire to open more U.S states’ procurement processes to competition is another example of where American consumer interests – in this case state taxpayers – are better served by the offensive negotiating agenda of the other government.

The takeaway here is that reciprocity-based negotiations force negotiators to go to bat for their exporting interests, while suppressing the interests of those who benefit from greater import competition. There is no national team to support in these talks. Generally, producer interests are better represented by their own government, and consumer interests are, residually, better represented by the other government going to bat for its producers.