Free Trade Agreements, Harry Houdini, and Amateur Magicians

 Cartoon by Jim Gibson

Free Trade Agreements are showing up in the news a lot these days. I generally favor anything that smacks of free trade just as I might gleefully accept a glass of Jack with ice cubes. We teach/preach that free trade is good because it removes obstacles to trade, generates more competition, and allows for the benefits of comparative advantage.

So why am I responding so negatively to news articles about the US trying to consummate a free trade agreement with the European Union (EU)? What about recent attempts to agree on US participation in the Trans-Pacific Partnership? How about those 13 proposed bilateral agreements with various and sundry countries (eg. Thailand, New Zealand, Ghana)? I should be really happy that all this free trade activity is going on.

But I am not that impressed and see this like I see the magician’s hand as he waves the magic wand. Magicians use many tricks but none better than sleight of hand. Sleight of hand takes years of practice and involves a very natural movement that attracts the eyes of the audience towards something the magician wants them to see – and more importantly away from the place he or she does not want us to look. For example, a pretty scarf goes out with one hand while the other swiftly and secretly removes a quarter from your pocket.

Our government prefers for us to be reading about all sorts of positive plans rather than focus on the everyday drama of resolving real problems. It is NOT news that government continues to make almost no progress on unemployment, government debt, immigration and more. In this environment advocating free trade seems like a free lunch. Even though it is next to impossible that any free trade agreements will be negotiated and signed by the US government in the near future, the photo ops are spectacular. Our government leaders can toast with important leaders around the world and pontificate about the great benefits of free trade as economic and social problems ferment and threaten to boil over.

I cannot imagine a worse time for free trade agreements. Every country I can think of has high and rising unemployment. Even in the US where the unemployment rate has been falling, we have much pressure for politicians to preserve and protect jobs and companies. This is not the ideal time to be explaining to the American public that the government is reducing long-held protections and allowing greater competition in the most sensitive of industries. It sounds great to say that a new trade agreement will open up opportunities abroad – while the other hand is really picking your pocket – that is, allowing dozens of other countries to compete with your own workers on home soil. And the recent history of globalization underlines how workers in low-income countries can impact the jobs of US workers. If you think the congressional debates about immigration and national debt are loud and ugly now – wait until these free trade pacts show up at Congress.

A second reason to believe that this is all a sham is to make note of the lack of general progress towards multi-lateral (involving more than two countries) trade agreements. The big momma of all such agreements is what is called the Doha Round of the World Trade Organization. This round of negotiation started in 2001. If you had a kid in 2001 he is now almost ready to go to high school and start dating girls with tattoos. That’s a pretty long time. The WTO has had previous rounds and while none of them was easy to conclude, none have taken this long. It is what some people call the problem of the “low hanging fruit.” It was fairly easy to make progress in lowering tariffs when tariff rates exceeded 100%. But the world has changed a lot and the protections that are in line to be removed, are a lot more difficult. For example we want Europeans to gobble biotech foods and they want us to make it easier for European companies to get contracts from the US government. That is not easy stuff. It might be easier to make French American’s third official language!

Sure, we recently concluded free trade agreements with South Korea, Colombia and Panama – but come on – we have pretty special relationships with those three countries. Yet, it took quite a while. Imagine this – once an EU-USA FTA is agreed by EU and US administrations, the agreement would then have to be passed in the capitals of 29 EU countries and the US Congress.  Maybe on some future date when the world recession is a faint memory and all our economies are hitting on all cylinders would such a feat be possible.

So all this trade talk today is simply noise. World leaders have subtle revolutions at least bubbling under the surface. They need to divert our attentions from all their failures to something that looks like Bourbon and Apple Pie (I kid you not – there is a restaurant in the Capital Hill neighborhood of Seattle named Pie Bar that basically sells only pie and whisky. And yes I was there and had a JD and Key Lime Pie!).  These free trade negotiations give the government people something to do. But the reality is that they not only are intended to fool the audience, but they may actually be making things worse because practicing all these tricks is keeping them from putting the food on the table. These guys are clearly amateur magicians and stand to create more harm than amusement. Watch out when they tell you that they are going to saw you in half!