If war is diplomacy by other means, then trade policy is the tool governments reach for when those other means are unthinkable. Despite decades of international negotiations and dozens of treaty commitments intended to make doing so more difficult, governments are increasingly choosing to interfere in global commerce in pursuit of diplomatic, strategic, and domestic political objectives.
Short of deploying troops or covert operations, trade policy measures are the most forceful, kinetic responses in the government toolkit—and are often seen as considerably less likely to escalate militarily. They are a potent signal of principles, a way of applying economic and political pressure, a tool for degrading the military capabilities of an adversary, and are sometimes (rather optimistically) viewed as a step toward regime change in hostile capitals.
Trade measures can deny rivals critical technology or materials, encourage important supply chains to move out of their territory, scare investors away from their shores, and force fence-sitting allies to make hard choices about allegiance. It is also increasingly seen as a way of bringing factories back home, both to ensure a robust industrial base should a war break out and for its own sake.
After Vietnam, Iraq, and Afghanistan, the Western public has developed some antibodies against promises that a military campaign will be fast, cheap, and easy. When it comes to tariffs and trade restrictions, however, politicians are still trying to sell the public on the concept of a free lunch.
It was almost refreshing when Republican vice presidential nominee J.D. Vance declared, “We believe that a million cheap, knockoff toasters aren’t worth the price of a single American manufacturing job.” As reductive and demagogic as that phrasing is, it at least presents the policy as a trade-off, rather than a magical solution that costlessly (or, as his running mate so famously insists, at costs paid only by the Chinese) generates jobs and factories.
Tariffs mean higher prices and less competition. However, there’s no question that if you deny more than 300 million Americans the ability to buy toasters from abroad, someone will eventually build a factory in the United States to produce them. The people want hot Pop-Tarts, and with foreign toasters locked out, the market will eventually provide a factory at home. The policy choice of just how much we’re willing to pay, in inflation and reduced competition per toaster factory, is the tug-of-war at the heart of trade policy—and the notion that every toaster factory is potentially critical to a future war effort is a very strong pull on the rope.
But you should apply skepticism across the board when it comes to trade deals—especially when it comes to promises of vast, treaty-borne job creation. The free-trade side can be just as disingenuous when promising jam today.
It is very unlikely that a government has managed to transform an economy by signing a trade deal. Unless you are a tiny state whose exports can’t possibly threaten anyone, a trade agreement that is going to create a mountain of new export jobs would mean the country you’ve done a deal with has fought and won a bloody internal battle against its protectionists for your express benefit. This is unlikely, so it either didn’t happen, or it’s legitimate to ask what your side offered that was so lucrative as to motivate its counterparts into the political trenches.
Government press release writers are wise to this and the unpredictable nature of jobs “created” by trade agreements. Rather than specific claims, they use rhetorical flourishes that could be generously described as “marketing” and less charitably as “bullshit.” Here are some examples.
“This Deal Covers 98 Percent of Trade”
This is a pet peeve of mine, because it’s technically correct but designed to mislead.
In most cases, a government press release will say something like this when a new trade agreement includes commitments that theoretically affect 98 percent of tariff lines, or more likely explicitly carve out 2 percent of them. Tariff lines are basically a long list of numbered categories covering every good and product imaginable. Businesses (or more likely their customs advisors) use them to find the right tariff for each of their products and thus the payment due. Saying a deal “covers 98 percent of trade” is almost always misleading nonsense, for several reasons.
First, especially in a free-trade agreement between two developed countries, a huge percentage of those 98 percent of tariff lines were already likely to have been set at, or close to, 0 percent. The trade agreement may include a commitment not to raise them any higher, but that was probably never going to happen anyway.
Second, unless we’re talking about two gigantic economies like the U.S. and EU, trade and potential trade are probably limited to relatively few tariff lines, and lots of them are purely theoretical. Saudi Arabia lifting an import tariff on sand in return for Britain lifting one on beer is unlikely to make much of a difference to anyone’s life.
Third, while 98 percent sounds like an overwhelming percentage covering almost everything, that can be deceptive. There are, depending on the level of specificity you’re operating on, either over 6,000 or over 10,000 tariff lines, with some being very broad and worth billions of dollars and others being incredibly specific and covering trade in products of marginal value. If the 2 percent of tariff lines not covered include the 30-odd lines representing most of your potential export value, 98 percent is not actually very impressive.
The trade agreement in question may well have eliminated some tariffs and may create some jobs, but the 98 percent figure is designed to bamboozle you into imagining a far greater opening of a market than probably took place.
“This Deal Covers Trade Worth $11 Billion Annually”
This soundbite lets politicians drop impressive figures, but it’s utterly misleading and deceptive. In virtually all cases, the headline figure is simply the total volume of goods and services traded between the two countries in the year before the agreement was signed. You can see why this claim is so infuriating. Every dollar in trade “covered” in this trade agreement was already taking place, despite whatever barriers may have been addressed in the deal. Every job that one thought this deal was “creating” already existed.
A more helpful and honest version of this claim would be: “A deal that we calculate may create up to $x in new trade within the next 10 years.” But that sounds both less definitive because it’s derived from computer modeling and less impressive because the number is probably a fraction of total existing trade.
An even more nightmarish version of this trope is when politicians or their pet tabloids declare a trade agreement to be “worth” the total gross domestic product of the other country. For the avoidance of doubt, a free-trade agreement with the United States is not in any way, shape, or form a “$25 trillion deal.”
“This Deal Slashes Red Tape”
I mean, sure. Maybe. For some of them. A bit. As a general rule, you should be skeptical of anyone vowing to significantly reduce “red tape” unless they specify exactly how. The odds that a trade agreement has managed to find so many acceptable risk reductions or redundant processes that it can “slash” anything is vanishingly small.
An interesting incongruity in international trade policy is that while businesses will increasingly tell you they are more constrained by procedures and regulations than they are by tariffs, trade agreements are pretty bad at tackling both procedures and regulations.
There are a number of reasons for this, but the easiest to understand is that tariffs tend to be within the gift of the trade ministry negotiating the agreement, while power over regulations and procedures almost certainly belongs to other government departments. That means a trade ministry seeking to cut tariffs need only negotiate with itself and its own stakeholders, while one trying to change a regulation (the rule) or procedure (the way officials implement or check against that rule) has to go begging bowl in hand to a fellow minister, cabinet, or the head of government.
Regulations are also just harder to shift. Unlike tariffs, they are rarely country-specific, which makes exempting one country from them difficult. A specific pesticide is either dangerous or it isn’t. Declaring that it is only dangerous if it doesn’t come from a country that you recently signed a trade deal with is incoherent and plain weird. Trade agreements can agree that certain checks can be waived or minimized because a specific trading partner’s safety regime or circumstances are sufficiently robust, but this tends to be on a case-by-case and product-by-product basis. Not so much slashing bureaucracy, then, as gently trimming it.
Indeed, historically, the majority of the commitments in trade agreements (including at the World Trade Organization (WTO)) around regulations and procedures haven’t been about cutting paperwork at all. Instead, they’ve introduced broad principles like not creating regulations specifically to be protectionist, or not requiring foreign products to meet regulatory standards your domestic ones don’t have to meet. These underlying rules are important, but they’re not smoothing existing procedures. They are about stopping future regulatory chicanery.
Governments have agreed-upon mutual recognition in some areas—which can reduce red tape—and have laid the groundwork for greater customs cooperation and data sharing in others, which can also be helpful. But anyone imagining a post-trade-agreement utopia of bureaucracy-free trade has been misled. This is doubly true when you recall that rules of origin mean that any trader looking to take advantage of an agreement’s lower tariffs has to brace themselves for an avalanche of paperwork to verify that their product is sufficiently local.
So Are Trade Agreements … Bad?
I live by the mantra that one should, wherever possible, reserve most of one’s criticism and ridicule for those with power and status. In trade, where agreements are overwhelmingly negotiated by governments, that mostly means ministers and to a lesser extent the well-funded think tanks that advocate for greater liberalization and deregulation. Yet they are not the only ones in this space, and not the only ones whose enthusiasm for their argument can lead them to make outlandish claims.
Much as proponents of free-trade agreements have a tendency to exaggerate or fabricate their potential for job creation, their critics tend to get carried away with uttering prophecies of doom. Industries suffer and jobs are lost for many reasons, from automation to changing consumer preferences and flawed business models, and most trade agreements carefully restrict new market access from damaging economically or politically sensitive sectors. Similarly, while the nature of trade negotiations makes them unlikely to slash regulations, they are also unlikely to create a free-for-all that will lead to poison being stacked on supermarket shelves.
Additionally, trade agreements, including those making up the WTO, allow governments to reimpose tariffs in the event of an industry-destroying surge of imports or certain forms of “unfair” foreign competition. Most international trade lawyers devote their careers to such reimpositions, known as “remedies.” I won’t torment you with even a taste of their intricacies, but suffice to say governments rarely find themselves completely bereft of fully (or mostly, or at least potentially) legal options when an unexpected flood of imports outrages domestic producers.
In parsing both the arguments of those praising trade agreements as miracles of job creation and those claiming they’ll doom us all to unemployment, I would urge you to return to those basic questions I try to ask in my book. Very simply:
How Do Things Work Now, and What Specifically Will This Agreement Change?
In most cases, you’ll find a list of how an agreement will actually change things to be more than enough to gauge the likelihood of a trade deal transforming your local economy, for good or ill.
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