Free trade deals.

Australia has concluded a ‘free-trade’ agreement with Thailand. This is sure to upset the consensus of economists who don’t like these deals, and instead urge Australia to encourage nations like the US and China to reduce trade barriers via munilaterial deals, like at the WTO.
I’m always staggered such economists pin such hopes in munilateral organisiations. For such organisations to work to Australia’s benefit, Europe needs to change it’s protectionist ways, and there’s plenty of other protectionist reprobates out there too. So even if China and the US were to change course after listening to Australia’s wise counsel, as the economists hope, Europe would still be a stumbling block.
And that’s not even considering the protectionist pressures in the US.
Protectionism in the world economy is a curse like smoking is. And just like smoking, protectionism is damn hard to give up, despite the clear benefits of being a non-smoker.
(Says this unreformed smoker.)



  1. Michael Jennings

    Mmm. Depends on the economist in question. These free trade deals are better to have than nothing, where nothing is defined as everything else being the same, but without the free trade deal. However, if the existence of these free trade deals causes the world to divide up into blocks with larger barriers between the blocks, then this is bad.
    No economist seriously disagrees as to the most desirable outcome, which is no trade barriers between anyone anywhere. The question is what is the best way to get there.
    Personally I favour unilateral free trade, but that is politically a non-starter, because the benefits of trade are not actually understood properly by the populace at large. (The key point is that it is imports that are beneficial. The only point of exports is that you can then pay for your imports).

  2. Dave in LA

    I’m with Michael. Bilateral deals are (somewhat correctly) criticized for being trade-distorting. They do, however, move things in the right direction. When they produce demonstrated benefits, they can tend to get others to want to join the party, and that’s a good thing.
    A major shortcoming ofbilateral deals is that they really can’t help with things like internal subsidies. Subsidies can’t easily be tailored to benefit just one or a few trading partners, and subsidies are the big remaining problem in Europe and the U.S.
    Subsidies confer huge benefits on a concentrated group, but the costs are widely dispersed and largely hidden. Therefore there’s no natural, vocal, voting constituency for eliminating them. The best political cover for removing subsidies is to obtain a really good multilateral arrangement.
    I agree with Michael about unilateral free trade being beneficial, too. The problem is explaining it to the voters. The issue is easy to demagogue, and existing beneficiaries of protection have every economic reason to do it.