Free Trade Agreement: An Analogy
Imagine for a moment you and your friends are getting together to discuss how you’re going to share a pizza.
Then the rich dude down the street comes in and says “Hey, can I get in on this”. He’s really rich, so his participation might help you get a much bigger pie (from a much better restaurant) and increase the number of toppings you get, so you say “sure, come on in.”
As part of this process, he demands that you add anchovies to at least half the pie (let’s assume for a moment, you’re one of those terrible people who hates anchovies), and that he will absolutely NOT tolerate any mushrooms being on the pie at all.
You acquiesce of course, because, again, he’s offering to pay a big chunk of the pie that has gone from medium to extra extra large, and from a Pizzahut to Lou Malnatti’s, but you’re still pretty iffy about his participation.
So you guys shell out the money, call the pizza place…then the guy comes over and says “Hey, sorry, my wife just told me we’re not supposed to have pizza” and walks away.
When you next order pizza and the guy comes over to say he wants in, how will you treat him?
What if the other rich neighbor up the street (a guy the first guy can’t STAND) offers to take part, and actually fronts the money?
And, this, my friends, is my overly simplistic description of the US role in the TPP negotiations. To see why this analogy works, see my historical overview in my old TPP primer.
Sure, though in this case there was no “Pizza” that was bought and paid for by anyone so no one’s really on the hook for anything beyond a lot of jawjawing. Since government officials everywhere adore jawjawing that’s not much of a sunk cost.
*note* I support the TPP personally.Report
Besides the lost years of time that they could have been focusing on other agreements- which is still something – I know several companies that sunk tens of millions of dollars into facilities and plants in anticipation of TPP going into effect after the agreement was finalized, and that’s just in my relatively smallish industry.
Now, you can say they should have waited for more countries to ratify (and I thought the same), but they did make those investments based on assurances from governments that the deal is done.Report
The knock on effects and the opportunity costs of actually dealing with the US wanting to start over are going to be pretty big.
Just like how Obama said the UK would have to get in line in the case of Brexit (as TTIP and TPP take precedence), the US may very well face some serious hurdles on getting the parties back to the table if they trash the current agreement.Report
I bow to your superior expertise, the thing about the TPP, of course, is that it’s final disposition will remain unknown until a non-election year.Report
I saw this tweet today and I have been chewing on it a long, long time:
That said, there is reason to come to the conclusion that NAFTA did not make everyone better off. The people hardest hit were not, in fact, the millionaire and upper middle class types.
I’m sure that there are a lot of people set to make out like bandits from the TPP and, sure, a rising tide will lift most of the boats.
But the people hardest hit will once again *NOT* be the Americans with the widest margins.
Of course the TP Partners in the TPP will benefit enormously. Ain’t nothing wrong with that.
But until we wrestle with the damage we did to our-ever-more-segregated society via NAFTA, though, we’re going to have to keep wondering why our wife is so dead-set against pizza.Report
I agree in general although i seriously doubt the history of that tweet. There was no Free Trade suddenly turning to non free that sparked WW 1 and 2. It was far more complex then that and involved a hell of lot of other things.Report
Huh? What damage did NAFTA do?
I thought it was the Chinese flooding our countries with their cheap products and Walmarts that were the problem.Report
Are you willing to believe the Economic Policy Institute? If so, here.
If not, yeah. It seems that Free Trade with China did a great deal of harm to American Workers too. Or so it is being reported. (Tyler Cowen called it “This is some of the most important work done by economists in the last twenty years.”)
If the EPI isn’t good enough for you, would you be willing to see how someone might extrapolate from Autor, Dorn, and Hanson and wonder whether NAFTA was all it was cracked up to be?Report
It’s not really about believing. Obviously, the EPI has an agenda and a point of view, just as all the pro-free trade think tanks have theirs
There is really only on one concrete claim on that page, the one about lost manufacturing jobs. And I have no doubt that globalization and development in other countries has cost the U.S manufacturing jobs. I just question the role that trade deals play in what just looks like an inevitability.Report
Here’s a link to the paper, then. It includes more concrete claims.Report
But you can’t extrapolate from Autor et al to NAFTA. As they themselves acknowledge, the sheer size of China and its unusually rapid industrialization made it sui generis. They actually looked at NAFTA in the same paper and didn’t find much. If I’m reading it right (it’s a bit technical), it says that the effect of NAFTA on US manufacturing employment was a) totally swamped by China, b) may even have been slightly positive, due to exports to Mexico.
EPI reliably pushes the union line. The fact that they oppose NAFTA contains precisely zero bits of information.Report
At the end of the day, the problem (very much like the problem with immigration) is one where the benefits of NAFTA fall squarely on my head and the costs of it fall… I dunno. Elsewhere.
All of the research I’m doing is telling me that NAFTA, overall, was good for everybody who signed up. I’ve no doubt that that is true, overall.Report
The real problem of FTAs is that there are always promises that our rich friend will help out the folks hurt by them. But when it comes time to actually try to help those folks, suddenly our rich buddy’s wife says he’s not allowed to spend money on losers who can’t hold a decent job on their own.Report
For all the grief that’s given to Tony Blair, one of the things that he DID do was he used the spoils of liberalization and globalization to fund a massive increase in redistribution in the UK.
Likely as not similar things would happen in Australia (well, maybe, not so sure any more) or Japan, or even Singapore.Report
Thats why I remain unconvinced on arguments about having better tools to deal with wage gaps than the minimum wage like the EITC and UBI. Put the better systems in place first before getting rid of the inefficient but still helpful theories we have now.Report
We have the EITC.Report
@j-r, For more news about NAFTA, go to your home page and type in “NAFTA’s detrimental effect on Mexico.Report