Foreign Policy Blogs

Trade And Strategic Logic

Photo Credit: www.vpsi.org via Wikimedia Commons

Photo Credit: www.vpsi.org via Wikimedia Commons

In the November/December issue of Foreign Affairs, U.S. Trade Representative Michael Froman advocates Trade Promotion Authority for agreements such as the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). He names objectives they would promote: “establishing and enforcing rules of the road” for trade, “strengthening U.S. partnerships,” and “spurring broad-based economic development.” These have been trade policy themes over many years. During the Cold War they fit together in the logic of opposing the Soviets, by promoting prosperity under capitalism and strengthening ties among non-Communist nations.

Opposing the USSR served our national interest by thwarting a broad-spectrum threat. Today, our national interest calls us to support freedom’s conditions worldwide. Development spreads freedom, as Froman observes, in keeping with the finding of economist Amartya Sen, that freedom and development are identical. America’s true strategic logic of trade is to promote development for every possible people and place. In practice, though, the first two of Froman’s three themes compromise that of broad-based development. Invoking trade’s rules of the road for domestic industrial and civic ends, or tying trade to geopolitical goals, hinders development.

Froman duly notes other countries’ infringements of trade’s rules, and that the U.S. under Obama has won every dispute submitted to WTO adjudication. The new rules of the road that he discusses, though, focus on labor or environmental standards, while many old-fashioned barriers such as preferences, subsidies, and tariffs still limit global trade significantly. Building national environmental and labor standards into the trade system, beyond a basic level, adds our domestic regulatory burden to the global restrictions. At the same time, we maintain subsidies and supports for our agricultural sector, which in some cases undermine cheaper production in developing countries. Froman remains vague whether our domestic policy preferences are more important than impartial broadening of trade’s rules of the road.

Trade policy enters public consciousness most visibly when we impose sanctions on other countries. Policymakers habitually impose them as a weapon, next-best to military action, when the latter cannot be justified or will not work. But restrictions on another country’s exports withhold economic output from the markets, which hurts everyone. Meanwhile, if  trade as something to take away from others becomes a norm, our own businesses will have to assess more, and more complex, political risks.   Prosperity will be inhibited for them, for countries where they contemplate transactions or investment, and for the world.

Trade policy becomes even more infused with geopolitics when we focus on blocs such as TTIP and TPP. Both agreements do liberalize trade in a gross sense, but skew its benefits toward geopolitical collaborators against perceived Russian (TTIP) or Chinese (TPP) security threats. Decisions to use trade to cement such partnerships should arise after considered deliberations, that containing China or Russia supersedes the logic of global trade liberalization. Otherwise we only justify our adversaries in building blocs against us, and destroy our rationale for liberal norms in world affairs.

Efforts to liberalize trade, globally and impartially, should be a constant, and unqualified, norm for U.S. foreign relations. We should use trade policy for other objectives only as those comport with this standard. Exclusions, sanctions and geopolitical blocs must be rare exceptions, triggered by egregious conduct or urgent dangers. Such measures should damage (or withhold benefits from) offending parties as directly and precisely as possible.

U.S. policy can start to implement this logic through a long-term campaign for further WTO liberalization. The WTO is a truly global organization, which requires full membership consensus to adopt extensions of its free trade principles. The current Doha Round of negotiations is badly stalled and may fail, but it or a successor effort would promote the global development that serves humanity’s general welfare — and America’s national interest. Committing to a long slog to build consensus, working uphill and over time against the forces of geopolitics, nations’ parochial fears, and even our own special interests, would substantiate America’s interest in development, and the freedom that follows, for all.

 
  • davidhill

    Whenever we are in a perceived economic crisis (EU growth stagnant or regressive), our politicians make diabolical decisions and the TTIP will be the icing on the cake here for terrible decision-making. But the TTIP is something that is irrevocable (we can never come out of it once signed) and where the corporation holds all the economic aces when it comes to suing sovereign governments for profit and investments. Overall it is the most far-reaching trade deal ever and we shall be locked into for life. For if we ever tried to get out of it, every corporation in the world could sue any EU nation and basically make that country bankrupt. Think it could never happen, think again – http://worldinnovationfoundation.blogspot.co.uk/2014/08/the-ttip-transatlantic-trade-and.html

    • JerseyJeff78

      Why is it bad creating the largest market in the world that unifies regulations and standards while creating a mutual body to arbitratare investment/business disputes on an equal playing field, no matter where you are doing business in the EU and US?

      The EU and US are working on unifying standards right now and that is something that is not argued or worried about by serious analysts and observers. Obviously they have to unify standards and that would be a cornerstone of any deal.

      What does having a transparent and equally fair investor arbitration body to oversee trade disputes to negate local biases have to do with lowering standards when it’s making all standards and protocols the same for a company in Toledo, Birmingham, Kraków, Frankfurt or Einhoven?

Author

George Paik
George Paik

George F. Paik is a former political affairs officer in the U.S. Foreign Service, as well as a twenty year veteran of U.S. capital markets. He is a current board member and former chair of the World Affairs Forum (a sister to FPA in the World Affairs Councils of America network) in Stamford, CT. His work as a diplomat straddled the fall of the USSR, and included political analysis, human rights, trade affairs, and environmental policy, in postings were in Brazil and Trinidad, and in the Department of State. Financial experience includes stints with Mellon Bank, Manufacturers Hanover Trust Co. and People’s United Bank. He currently holds the position of Managing Director at Lord Capital, LLC, a firm focused on international trade finance.

Paik graduated from Harvard University with a BA in Social Studies; he also holds an MBA in Finance from the Wharton School of the University of Pennsylvania. He counts ten years playing Rugby, with club mates from countries around the globe, as part of his international experience.

americasdiplomats_socialmediaasset