Make trade, not war...

With the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the (currently lesser known) Trade in Services Agreement (TiSA) negotiations making news, it seems many are split as to whether they are good or bad, and why. Surely, most economists have to agree that trade and in particular, 'free trade' among nations is a great thing. So why all the resistance? 

One notable point is that aside from TiSA, which has asked China to join the negotiations, the trade deals all leave out the BRICS nations of Brazil, Russia, India, China and South Africa. This is clearly intentional and should be the focus of a post another day...although this Economist article gives some great insight into the ulterior motives some claim may exist behind the trade benefits of the deals.

Most people you could ask on the street wouldn't be particularly resistant to trade agreements just because China were left out, so what are the main causes to object to these treaties?

Against them...

Trade diversion?

This may be more likely an objection of the economist, nationalist or altruist. Current trade relationships with excluded countries may need to be severed and, according to Miles McKenna, in his post for Worldbank.org, this could cost China US$46.8 billion. It may be considered compassionate to think of those left out, but the developing world is a genuine concern for many people today. However, for countries within the agreements, their new partners may become suppliers at the expense of those not included. This may mean an increase in costs as countries are forced to trade within the alliance and possibly not with their previously cheaper exporting partners. An interesting paper reviewing the likely trade implications of the TPP can be found here.

Such a huge proportion of world trade

The countries involved in the TPP are responsible for 40 percent of the world's GDP and 26 percent of the world's trade. This is about the same size as the TTIP and frightens many people. More on the facts related to the TPP here.

Unemployment?

More important to those living within a country joining the partnership, such as those in Europe or the USA, are the implications to their own jobs. Free trade tends to bring the opportunity to produce goods and services abroad at lower cost. This in turn will lead to a reduction in employment as manufacturing moves away from the host nation to the countries who can produce more cost-efficiently within the partnership. Robert E. Scott's blog post for the Economic Policy Institute looks at the implications of the TPP on jobs and wages in the USA and builds a strong case for the ending of currency manipulation to strengthen the USA's competitiveness as opposed to entering the agreements.

Lack of transparency

One often cited concern is the lack of transparency about what the agreements actually include and how much of what is contained relates to trade alongside the concepts of intellectual property rights and policy laundering. Watch this and read this for more on that.

Is it because corporations may sue governments?

TTIP will enhance the ability of corporations to sue governments who pass legislation which could be considered restrictive to trade and harm their profits. An excellent review and examples can be found in this Guardian article. 

Who is In favour of the currently negotiated free trade agreements?

There is massive support for the agreements. This comes from business (who stand to benefit most?), the governments involved and lots of prominent economists. Much of the commentary from economists is about supporting 'trade', and not necessarily the content of the Agreements being discussed, an issue possibly missing the point of why many do not support the agreements. 

Gregory Mankiw, a Harvard Professor and chairman of the economics department believes that TPP and TTIP are both beneficial and should be supported as the issue of trade is "a no brainer" among economists and wrote that "economists reach near unanimity on some topics, including international trade" in his post for the Upshot (NY Times). His post discusses key biases that could have led to a lack of support for the agreements and compares the scenario to the concept that 'good policies' are often met skeptically and discusses Bryan Caplan's 2007 book “The Myth of the Rational Voter: Why Democracies Choose Bad Policies." He cites the key biases preventing full support as the voters possessing anti-foreign, anti-market and make-work biases.

Mankiw, in the same post, rebuttals the job losses many worry about by stating "full employment is possible with any pattern of trade. The main issue is not the number of jobs, but which jobs. Americans should work in those industries in which we have an advantage compared with other nations, and we should import from abroad those goods that can be produced more cheaply there." 

Comparative advantage, even though a simplistic concept, does reflect real benefits for those involved in trade, and with economic theory underpinning how economists think, most do support the agreements. This Cato Institute article shares the views of many of the USA's leading economists, which seem to range from indifferent to wholeheartedly backing the TPP.

Paul Krugman, who sits in the indifferent camp, explains how the impact of protectionism is much less than it was in the 1960s and feels that the impact would be low. He closes his article titled 'No Big Deal' musing that "Whatever the motivations, however, the push for T.P.P. seems almost weirdly out of touch with both economic and political reality." Krugman asks why Obama is pushing the TPP as he believes the economic case is weak so "why waste time and political capital on this project it?"

Krugman's indifference receives a scathing attack here and the article, by Antoine Najn, provides a superb table outlining the key features of the TPP and TTIP.

Benefits to the member countries

The Peterson Institute for Economics states that "The Trans-Pacific Partnership (TPP) agreement...could yield annual global income gains of $295 billion (including $78 billion for the United States) and offers a pathway to free trade in the Asia-Pacific with potential gains of $1.9 trillion." 

The British government, who are involved in the TTIP as part of the European Union, published a report that is particularly supportive of the TTIP agreement and states that "we [the government] agree TTIP is a significant trade deal. EU-US trade liberalisation could potentially benefit global welfare." 

Included in the report are comments by David Cameron that include his statement, made at the June 2013 G8 Summit: "...there is no more powerful way to achieve that [economic growth] than by boosting trade...a deal that could add as much as £100 billion to the EU economy, £80 billion to the US economy and as much as £85 billion to the rest of the world." 

Global Economic growth?

With 793 million consumers likely to be impacted, those in favour of the TPP agreement cite that this agreement alone could provide global income benefits of an estimated $223 billion per year, by 2025. These numbers sound great, but if the costs are as real as the potential returns could be then it is a tough call whether to proceed with the agreements.

Bromund, Coffey and Riley summarise it nicely in their report on the TTIP stating, "The U.S. and the world have too much to gain from freer trade to accept anything less than an agreement that verifiably makes real and substantial strides toward promoting economic freedom."

Countries should support agreements that genuinely promote growth, freedom and employment through greater economic freedom. However, if agreements are covertly designed to further the interests of corporations, reduce sovereignty or achieve hidden strategic geopolitical agendas, all under the guise of 'free trade', then those in opposition are 'in the right'.