NAFTA renegotiation is a failure of education 1


Trade enhances productivity, improves real wages and grows economies, but not enough people know how or why

BY JUSTIN BEDI

Renegotiation of the North American Free Trade Agreement started this week. Canada, Mexico and the United States have begun a complex, time-consuming and difficult process that could change everything – or almost nothing.

For all countries involved, the risk and uncertainty outweigh the potential rewards, because we already had the ultimate reward: free trade.

Justin Bedi

Only the U.S. wanted to renegotiate NAFTA and President Donald Trump’s election campaign clearly brought the reason to light: We have failed to educate the world on the merits of free trade. People just aren’t buying it.

Mainstream trade discussion is no longer about economics – it’s about politics. Trade enhances productivity, improves real wages and grows economies, but not enough people know how or why.

Trade discourse, and government policy making, are about one thing: growing exports. There’s been a regression back to the age of mercantilism, where exports are ‘good’ and imports are “bad.’ This is the attitude of many in the White House.

In truth, imports are just as important to an economy as exports: they provide cheap inputs for value-added manufacturing, access to goods and services we can’t produce efficiently (or at all) domestically, and a greater selection of products at lower prices for consumers.

It’s discouraging to see influential individuals and world leaders incorrectly use concepts such as current accounts, trade balances, dumping and subsidies as guises to hurt international business and argue for protectionism.

Current account deficits and negative trade balances aren’t inherently bad: many countries have consistently had both for decades, including Canada and the U.S., and both are G7 countries at the top of the industrial world.

Dumping and illegal subsidies are legitimate threats to global trade and should be treated as such. However, too often both anti-dumping and countervailing duties are applied simultaneously and without sufficient evidence. That was the case when the U.S. applied duties on Canadian softwood lumber earlier this year, even though it has previously been demonstrated that Canadian lumber producers are guilty of neither trade offence.

Ironically, part of why trade discourse has come to this point is the dominance of industry in trade policy. Almost every government is far more likely to listen to the concerns and wishes of industry than those of consumers, and will enact policies to shield their domestic industries against international competition.

Part of this is our fault: industry is well organized and consumers are generally not. There are a few successful consumer groups but they have nowhere near the power of industry groups. And to be honest, as a single individual it’s more difficult to get up and push for different trade policies than it is for industry.

If a country reduces tariffs on an import – say avocados – the benefit for one person could be as little as $10, or perhaps as high as $100 a year if they purchase many avocados. In contrast, the negative impact on a business from the same tariff reduction could mean thousands or tens of thousands of dollars in lost revenue. Given the math, it’s not hard to see why industry is more organized when it comes to trade.

Collectively, protectionist trade policies such as tariffs and quotas have been proven to have a greater effect on consumers than on producers. But individually, it’s difficult to conceptualize the benefits of pushing for freer trade when it may only mean a few dollars in savings annually.

NAFTA renegotiations could improve trade in North America through greater regulatory co-operation, improved dispute resolution and the elimination of technical barriers to trade, provided duty-free access is maintained.

However, fixing these issues didn’t require drafting an entirely new agreement.

NAFTA is being renegotiated under very questionable terms and certainly not for economic reasons.

International trade, in its simplest terms, is just a commercial transaction between a foreign buyer and a foreign seller.

If more of us thought about trade that way, we wouldn’t be spending millions of dollars and hours renegotiating NAFTA. And we could focus on growing trade elsewhere – like within Canada.

Justin Bedi is a trade expert who specializes in international monetary economics. He holds a master’s degree in International Trade from the University of Saskatchewan’s Johnson-Shoyama Graduate School of Public Policy.

© 2017 Distributed by Troy Media

  • Jo G

    I find this to be a very simplistic look at so-called “free trade”.

    A basic discussion on free trade – the elimination of barriers, including tariffs, quotas and subsidies – should at least include dumping as well as government fixed exchange rates.