Bush Reminds Us of the Virtues of Free Trade

The Trump administration is currently engaged in almost the exact opposite of the type of trade policy the United States ought to be pursuing.
October 22, 2017 • Commentary
This article appeared in The Hill (Online) on October 22, 2017.

Former President George W. Bush’s delivered a speech this week, which placed in stark relief the differences between his own views on trade policy and those of the current Republican president.

Calling free trade one of the ingredients that helped make the United States a global economic power, Bush also warned of the poverty that follows in protectionism’s wake — language clearly aimed at President Donald Trump.

Trade policy differences between the 43rd president and the current White House occupant, however, go well beyond those of tenor or tone.

Under the Bush administration, the United States essentially adopted an “all of the above” approach, concluding both a series of bilateral agreements as well as engaging in several multilateral efforts including the Central American Free Trade Agreement, the Doha Round of World Trade Organization talks and the early stages of the Trans‐​Pacific Partnership (TPP).

Trump, meanwhile, has made clear his contempt for agreements involving more than one country. Of his January decision to withdraw from TPP, the president recently called the move “a great achievement” and said of the North American Free Trade Agreement (NAFTA) that it “will have to be terminated in order to make it good.”

Regretfully, Trump has made clear that free trade agreements will now be done on an exclusively bilateral basis.

While the flaws in this approach are numerous, perhaps most glaring is the limits this approach places on opportunities to negotiate such deals. Although the Trump administration has made clear its interest in a free trade agreement with Japan, the country has seemingly demurred.

Efforts to conclude a ballyhooed FTA with the United Kingdom, meanwhile, are hamstrung by the fact that the country cannot negotiate any trade deals until it concludes its exit from the EU.

Even if willing negotiating partners existed, however, Trump’s insistence on bilateral deals would still be ill‐​advised.

Perhaps most importantly, such agreements typically offer lower economic benefits compared to their multilateral counterparts. By involving more countries, multilateral agreements can unlock expanded economies of scale, in turn allowing for an ever more specialized division of labor with resulting boosts to productivity and lowered costs.

These efficiency gains allow us to do more with less and free up additional resources, upon which expanded prosperity and improved standards of living depend.

Another strike is the added paperwork presented by the conclusion of multiple bilateral deals. Whereas the TPP offered the prospect of a single set of rules to govern trade among its dozen members, Trump would seemingly prefer separate deals with the agreement’s members, each with its own unique quirks and provisions.

A trade lawyer’s delight, the approach is a curious one for an administration that purports to pride itself on the cutting of red tape.

While President Trump has decried many trade deals for allegedly leaving the United States on the losing end, his current approach seems worse.

As Washington languishes on the sidelines while new multilateral deals are concluded, their terms are almost certain to make the United States a less attractive destination for trade and investment in comparison to the members of these agreements.

Indeed, Trump is leaving money on the table. Examining the TPP agreement abandoned by Trump, the Peterson Institute for International Economics concluded that it would have produced benefits of $131 billionto the United States alone and $492 billion in total.

recent working paper from the same think tank found the payoff of a U.S.-Japan bilateral deal to have total benefits of $120 billion, while an agreement among the TPP’s eleven remaining members — with a lower combined GDP than the United States and Japan — would produce a $147 billion gain.

Meanwhile, President Trump’s dubious justification for focusing on bilateral deals — that they will position the United States to extract deeper concessions from its negotiating partners — should be viewed warily.

For U.S. businesses, which rely on imports as part of their supply chains to stay competitive, and individuals, who reap the benefits of lower prices and expanded choice, the ideal trade negotiation should be one which prizes the expansion of access to imports as much as it does exports.

The president’s desire for a lowered trade deficit, however, almost assures that U.S. negotiators will use any strengthened hand to emphasize the latter over the former — to our overall detriment.

The Trump administration is currently engaged in almost the exact opposite of the type of trade policy the United States ought to be pursuing. The possible unraveling of NAFTA and abandonment of TPP would exchange concrete economic gains for smaller potential ones from bilateral agreements around which negotiations have yet to begin.

President Trump is on course to exchange tangible economic benefits the United States was on the verge of realizing for others that are minimal or illusory.

About the Author
Colin Grabow

Policy Analyst, Herbert A. Stiefel Center for Trade Policy Studies