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Popular sentiment is hardening against free trade

Nafta boosted economic activity but many of its specific promises proved false

“An educated consumer,” the New York haberdasher Sy Syms used to boast in his television commercials, “is our best customer.” The same is not true of trade pacts. Since the passage of the North American Free Trade Agreement 20 years ago, voters have come to understand them better and like them less. True, 54 per cent of Americans see trade as an “opportunity for growth”, according to a recent Gallup poll. But 38 per cent see it as a “threat to the economy”, and they are dug in. Many blame globalisation for the 60,000 plants closed, by some estimates, and the 5m manufacturing jobs lost since Nafta was passed. The White House – negotiating the Transatlantic Trade and Investment Partnership with the EU and the Trans-Pacific Partnership with 12 nations – finds itself failing on both fronts.

Nafta was oversold 20 years ago. It has generated much economic activity but many of its specific promises proved false. It did not stabilise the US trade balance; instead it led to sizeable trade deficits. It did not produce a Mexican prosperity widespread enough to hold down migration to the US; instead it weakened the rural Mexican economy and drove immigration higher. Other trade deals have brought unpleasant surprises, too. Since a pact with South Korea came into force in 2012, US exports there have fallen and the bilateral trade deficit is up more than 50 per cent. Barack Obama’s trade negotiators boast that their “21st century” agreements will avoid some of Nafta’s economic pitfalls. The problem is that the criticism of those agreements is 21st century as well.

Today’s trade deals are more about setting standards and ground rules than about removing tariffs and quotas – which, except for food and clothing, are already quite low in the US. The new pacts get under the skin of the those who distrust global capitalism, just as the old pacts did. But they also provoke unwonted unease among market libertarians. Thus, Lori Wallach of the anti-Nafta group Public Citizen was one of the heroes of the 1999 Seattle street protests against the World Trade Organisation, but her sophisticated, left-leaning arguments against granting “fast-track” authority to today’s US trade negotiators might also convince the constitutional literalists who inhabit the various Tea Party groups.

As Ms Wallach said in a recent television appearance, the new-generation pacts are only partly about trade. The main thing such pacts do is to improve the standing of corporations against the governments that would regulate them domestically. So-called “investor-state dispute settlement”, a Nafta innovation, elevates a certain expected regulatory environment to the level of a right. Companies can sue countries before an ad hoc panel over the negative impact of laws passed in their parliaments. (Labour groups and non-governmental organisations cannot.) Under a similar set of arbitration rules the Swedish energy giant Vattenfall is seeking €3.7bn from Germany over its plans to phase out nuclear power. Another problem: members of the US Congress and of the German Bundestag have complained of getting less access to details of trade legislation than lobbyists do. In the US, advice about legislative language is being given by complex “advisory committees”, many of them defending industry niches.

The French political philosopher Pierre Manent gave an interview with the newspaper Le Figaro in January in which he noted that the old sociological case for free trade (that local manufacturers with captive markets get lazy) no longer applies. Today there is a better sociological case against free trade (that distant manufacturers with access to cheap labour get lazy). In such a world, the “natural” constituency of pro-business and free-market conservatives that people always assume will materialise for TTIP or TPP may not exist. Counting votes for any trade bill looks as unpredictable as last September’s presidential request for authorisation to use force in Syria. Mr Obama needed hundreds of votes to prevail, and withdrew when it became clear he could muster only a few dozen.

The Economist magazine recently taunted the president with the observation that failure in trade legislation will be “a signal that America is giving up its role as defender of an open global economy in the same way that Mr Obama has retreated in foreign policy”. One might add that the two retreats are being carried out on the same, perfectly reasonable grounds. The status quo is growing unpopular domestically, and harder to sustain. The economic case for free trade remains, in many instances, a strong one. Protectionism can be economically costly. But agreements to open up markets can be politically costly. It may be a while before we see another.

 source: FT: Popular sentiment is hardening against free trade