Trade deals are bad anyway, why? Sorry it is a long one.

The World Trade Organisation (WTO) is interesting. All economists, that is people who have studied economics and are qualified in the subject (not me), agree that the world would prosper much more if there was free trade between all countries instead of all these meddling trade deals. I confidently claim “All economists” because it is accepted economic theory like we accept that the world is round but I’m sure I could find economists who disagreed but they would be very few and probably wrong since all their peers disagree. So the goal, I hesitate to say utopia because that makes it sound unachievable, is to create a world where all trade is free. By free they mean that governments do not charge any import duty, or tariff, on any goods from abroad. The idea being that countries are able to specialise in the goods and industries they are best at and as a whole the world prospers more because we are more efficient. This efficiency also might have positive implications for the environment. In this goal the WTO has done quite well so far; the average tariffs have reduced from a whopping 40% to 5% since 1947 when WTO began (formerly called GATT or something).

All this has happened despite the EU. In fact perversely the EU actually breaches a fundamental principle of the WTO. Don’t quote me on this but there is the principle of Most Favoured Nation (MFN) where all WTO members must grant all other members MFN status. I think this means everyone must be given the best deal you have so you can’t favour your friends over others. The EU breaks this but magically they are granted an exception by the WTO. Hence my comment that the EU could actually be counteractive to the commonly accepted goal of globally FREE trade.

Free trade with no tariffs means deal-free trade. So I ask myself what’s so difficult? What are trade deals anyway and how come we have them if the obvious goal is to have free trade?

What is a trade deal? (IMHO) A trade deal is where a bunch of sir Humphreys from two or more countries light cigars and horse trade tariff levels on a bunch of goods. As we know these people are politicians not business men only concerned with trade and prosperity, politicians are also concerned about votes and power and their world status so it is easy to imagine how things other than pure economics of trade might creep into the negotiations.

Why do we have them at all then? (IMHO) We have them because we allow politicians to meddle with business and trade, things they know little about. The problem is that politicians need votes, it is their life blood, their prime directive. This makes them weak because parochial protectionist organisations can hold the politician to ransom over votes and force then to protect a local industry against more efficient and cheaper goods from abroad. America is probably seen as the most capitalist country in the world but it is also one of the most if not the most unionised labour markets in the world. A US dock worker makes over $100000 for shifting boxes and driving a forklift. I used the word protectionist out of respect to the mafia. Yeah OK that is just me being a bit too anti unions. Yo tolkin’ t me? It’s a joke everyone knows the unions are impeccably run these days.

Without trade deals the world would be trillions better off.


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