Trade Agreements – the New Protectionism

Trade Agreements – the New Protectionism

2 May 2016


According to the IMF (and pretty much everyone else, I believe) the Great Depression of the 1930s was made worse by protectionism.

After the financial crisis that blew up in 2008, leaders of the Group of 20 (G-20) economies pledged to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports.” They all agreed that a return to protectionism would be a disaster.

The World Trade Organisation (WTO) is not a promotor of liberal free-for-all trade. It is an organisation of 162 countries based in Geneva (where else?) that employs 640 Secretariat staff. It particularly promotes the interests of developing nations and negotiates and monitors international trading rules. As we shall see in a moment, developed nations are showing an increasing wish to do their own thing.

In its own words: “WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions.”

Agreements are negotiated and then ratified by member countries one by one. Many of them ratify with qualifications that they individually require. The phrase “bureaucratic nightmare” comes to mind. The Doha development agenda has been under discussion since 2001. It is easy to suspect that these negotiations will occupy entire (probably highly agreeable) working lives. Consider this sinister undertaking:

“Virtually every item of the negotiation is part of a whole and indivisible package and cannot be agreed separately. This is known as the “single undertaking”: “Nothing is agreed until everything is agreed”.”

Nothing is agreed until everything is agreed. Wow.


The WTO was founded in 1995 on the premise that international trade is an activity that takes place between nations. As far as this applies to undemocratic nations it is at least partly true. North Korea, for example, exports a fair amount to China. I’m guessing that the nations involved monitor this pretty closely.

Yet much of what passes for political debate seems to assume that we all function in this way. Don’t take my word for it. Listen to Donald J Trump on one of his favourite subjects: why Mexico will pay for a wall to keep its own citizens in.

“We have a trade deficit with Mexico of $58 billion a year. We’re going to make them pay for that wall. The wall is $10 billion to $12 billion. I don’t mind trade wars when we’re losing $58 billion a year. Mexico is taking our businesses. They devalue their currencies to such an extent that our businesses cannot compete with them, our workers lose their jobs.”

Mexico is part of NAFTA (North American Free Trade Agreement), signed in 1994 between the US, Canada and Mexico.

In Trump’s view, all the exports from Mexico are sponsored by the state which also controls its own exchange rate. His response is to say that he wouldn’t mind a trade war. If I understand him, his weapons would consist of penal tariffs on Mexican goods. I guess that would be the end of NAFTA.

Talk of this kind is traditionally the practice of those on the left. The recent decision by Tata (an Indian company) to close much of the remnants of the UK steel industry brought forth many Trump-style complaints about Chinese dumping and calls for government intervention but these were mostly from left of centre politicians.


Ironically, I think that the perceived success of China has normalized the idea that it is OK for governments to interfere in international trade. The possibly inflated perception of China’s success makes an economy directed by central command a temptingly facile answer for some people who dislike the hard graft of trying to calculate the probable outcomes of certain actions.

Protectionism is now being implicitly embraced by politicians everywhere and on all sides.

I think the truth is that economic difficulties tempt politicians of all kinds to start trying to protect jobs at home. In 2016 you can add in the fact that inflation is a problem in only a few parts of the world. Import tariffs will tend to raise prices (either because people have to pay more for the imports or because they produce the goods at home more expensively). Inflation is 0.9% in the US, 0.5% in the UK and a splendid 0.0% in the Eurozone. Central bankers fear deflation above all else.

So, if you are worried about being re-elected, take a lead from the Communist Party of China which is on a 67 year roll of success.


NAFTA looks as if it will be partly superseded by the Trans-Pacific Partnership (TPP) which has been agreed but not yet ratified by twelve countries, including the NAFTA members and Japan and Singapore. TPP does not include China. Ratification may take a long time as the US Congress and both the leading Presidential contenders appear to be against it (Hillary Clinton’s opposition is fairly recent and somewhat surprising as TPP is an Obama project).

Last week, the ever-hopeful US President Obama was in Europe promoting another trade deal, TTIP (Transatlantic Trade and Investment Partnership), a bilateral proposal between the US and the EU. TPP and TTIP are effectively rivals to the WTO Doha negotiations. It seems that politicians and their officials just cannot get enough of trade deals between nations.

The prospect of TTIP is becoming very unpopular among the citizens of the US and the EU.

A YouGov survey (sponsored by the Bertelsmann Foundation) reported a few weeks ago that whereas in 2014, 55% of the German and 53% of the US populations though that TTIP was positive, these numbers have dived to 17% and 18% respectively. There is a growing suspicion that the deal is being drafted in great secrecy. Private Eye says that even MEPs have to view drafts in secure rooms. It has been reported that Wikileaks is offering a substantial reward for documents containing details of what is proposed.

Germany is famous as a nation whose great prosperity is based on exports and many Germans are understandably proud of this. If ever there were a people who would be expected to welcome expanded international trade it should be these people. Now the issues that YouGov says Germans are most worried about concerning TTIP are consumer rights, environmental standards and workers’ rights. They think that the standards that are currently attached to these issues are being secretly negotiated away. US citizens are most worried about unemployment.

When Barack Obama made his comment recently that “the UK is going to be in the back of the queue” he was referring to TTIP. “ I think it’s fair to say that maybe some point down the line there might be a UK-US trade agreement, but it’s not going to happen any time soon because our focus is in negotiating with a big bloc, the European Union, to get a trade agreement done”.


Obama’s warning, which is echoed by the major part of the UK establishment that wishes to stay in the EU, amounts to the suggestion that the world is going to be stitched up into protectionist trading blocs. These will be presented as promoting trade but do not doubt that protectionism is their primary motivation. Though remember that Donald Trump is against the TPP because it is insufficiently protectionist.

From the President of the United States downwards, politicians want to impede world trade under the guise of any regulation that they can dream up. Barack Obama came perilously close to making an explicit threat against the UK electorate, a scarcely believable move that thankfully appears to have backfired (“Leave” has improved its polling numbers following his visit). Is there anyone left who believes in free trade?

Happily, I think the answer is that yes, there are people who still believe in free trade. They are the people who run businesses, who make and sell stuff, the people who actually conduct international trade. Protectionist governments seem to do everything in their power to prevent companies from trading with each other but these heroes of capitalism battle on regardless.

The idea that corporations represent the nations in which their headquarters are located is a grotesquely outdated and naïve misunderstanding. I have written before about the absurd championing of AstraZeneca. Most of the British steel industry is owned (for the time being) by Tata, an Indian conglomerate. Britain is one of the twenty countries in which Tata manufactures steel. Do the other nineteen countries go into bat for “their” steel industry? Probably.

The UK has a deserved reputation for respecting property rights, regardless of whether the owner is domestic or foreign. This is the opposite of protectionist and it provides implicit insurance against other nations that would seek to punish or discriminate against the UK for refusing to ask “how high?” when ordered to jump. It is the reason why investors from all over the world invest in the UK. Protectionism, even when labelled as a “trade partnership”, drives investment away. Will somebody please tell the politicians?

One comment

  1. Cherith /

    I will tell the politicians…when they stop talking about Hitler.
    Well done

Leave a Reply