Trade agreements have become a frequently heard subject this election season. Recently, Gov. Kasich (R-OH) appeared in Obama’s White House to support the Trans-Pacific Partnership (TPP), which contradicts the position of his party’s presidential candidate. That’s an unusual move in politics, so just what’s going on here?
According to a helpful BBC article from July, 2016, the TPP involves 12 countries: the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. Note China is NOT included. In short, the agreement aims to deepen economic ties between these countries by fostering trade and eliminating or reducing some 18,000 tariffs—some immediately, others over time.
As of this writing, both party’s candidates oppose TPP, as did candidate Sanders, and one of Trump’s big “selling points” is better deals. We have neither the credibility nor article length to treat this subject comprehensively, but since many readers are associated with companies doing considerable business with foreign entities, a very brief introduction seemed like something that would be useful. Please feel free to contribute comments below.
Historically, and certainly in the case of the US, most revenue was generated through tariffs until the introduction of income taxes early in the 20th century. Tariffs may have hit their high (or low?) point in the 1930’s with Smoot-Hawley, thought to have been a big contributor to the Great Depression. Over the past few decades much has been made of moving towards more FREE trade.
So to begin with, what are the pros and cons of free trade? What follows is a very brief summary.
- Supporters argue that free trade lowers prices. Countries are more able to focus on that which they do well, with all parties enjoying the benefits of this efficiency. This point is dependent upon governments NOT subsidizing various industries, however.
- National Security is enhanced through increased trade between countries, as it makes them less likely to encourage conflict. Economic dependency is thus a vehicle for overall peace.
- Overall capital inflow is increased because total business level is increased. Thus, entrepreneurial activity generates more income to be spread throughout their local communities.
- Free trade promotes the growth of multinational corporations who can farm their labor out to the cheapest source. This leads to cheaper prices in their stores that eventually drive their smaller (“mom & pop) competitors out of business (Walmart comes to mind). In the same vein, free trade allows foreign industries to do business cheaply, making it much harder for developing countries to promote their own industries.
- Economic dependence is seen as a negative. Free trade encourages imports rather than development of a country’s own independent economy. A resource-rich but otherwise underdeveloped country might rely on specific raw material exports to generate needed import revenue, as an example. If technology lessens the value of that raw material (coal, for example) the local economy could be in real trouble.
- Some argue that free trade helps ineffectively governed countries. Perhaps some of the middle east countries are good examples of this. In many such countries, the ability to generate great oil revenues allows the extravagant lifestyles of the ruling families. Rather than needing to develop a more comprehensive economic basis for the country, a wealth of one particular and highly desirable good can lead to significant inequality.
The pros and cons article came from this article. If you go to that link, you will also find a strong argument against the structure of recent trade deals in a Ralph Nader video.
As we can all see, this is a subject with enormous implications. There are strong arguments on both sides, and we can expect any complex trade agreement such as TPP to contain numerous controversial features. No matter what, we know two things will be the case with any agreement. One is that true “free trade” will not exist, and whatever the features, election positions will exploit things that support their particular agendas.