The Trade Deal Scam
As part of its overall economic strategy the Obama administration is rushing full speed ahead with two major trade deals. On the one hand it has the Trans-Pacific Partnership, which includes Japan and Australia and several other countries in East Asia and Latin America. On the other side there is an effort to craft a U.S.-EU trade agreement.
There are two key facts people should know about these proposed trade deals. First, they are mostly not about trade. Second they are not intended to boost the economy in a way that will help most of us. In fact, it is reasonable to say that these deals will likely be bad news for most people in the United States. Most of the people living in our partner countries are likely to be losers too.
On the first point, traditional trade issues, like the reduction of import tariffs and quotas, are a relatively small part of both deals. This is the case because these barriers have already been sharply reduced or even eliminated over the past three decades.
As a result, with a few notable exceptions, there is little room for further reductions in these sorts of barriers. Instead both deals focus on other issues, some of which may reasonably be considered barriers to trade, but many of which are matters of regulation that would ordinarily be left to national, regional, or even local levels of government to set for themselves. One purpose of locking regulatory rules into a trade deal is to push an agenda that favors certain interests (e.g. the large corporations who are at the center of the negotiating process) over the rest of society.
Both of these deals are likely to include restrictions on the sorts of health, safety, and environmental regulation that can be imposed by the countries that are parties to the agreements. While many of the regulations that are currently in place in these areas are far from perfect, there is not an obvious case for having them decided at the international level.
Suppose a country or region decides that the health risks posed by a particular pesticide are too great and therefore bans its use. If the risks are in fact small, then those imposing the ban will be the primary ones who suffer, presumably in the form of less productive agriculture and higher food prices. Is it necessary to have an international agreement to prevent this sort of “mistake?”
As a practical matter, the evidence on such issues will often be ambiguous. For example, does fracking pose a health hazard to the surrounding communities? These agreements could end up taking control of the decision as to whether or not to allow fracking away from the communities who would be most affected.
In addition to limiting local control in many areas these trade deals will almost certainly include provisions that make for stronger and longer copyright and patent protection, especially on prescription drugs. The latter is coming at the urging of the U.S. pharmaceutical industry, which has been a central player in all the trade agreements negotiated over the last quarter century. This is likely to mean much higher drug prices for our trading partners.
This is of course the opposite of free trade. Instead of reducing barriers, the drug companies want to increase them, banning competitors from selling the same drugs. The difference in prices can be quite large. Generic drugs, with few exceptions, are cheap to produce. When drugs sell for hundreds or thousands of dollars per prescription it is because patent monopolies allow them to be sold for high prices.
If these trade deals result in much higher drug prices for our trading partners, the concern should not just be a moral one about people being unable to afford drugs. The more money people in Vietnam or Malaysia have to pay Pfizer and Merck for their drugs, the less money they will have to spend on other exports from the United States. This means that everyone from manufacturing workers to workers in the tourist sector can expect to see fewer job opportunities because of the copyright and patent protection rules imposed through these trade deals.
To see this point, imagine someone operating a fruit stand in a farmers’ market. If the person in the next stall selling meat has a clever way to short-change customers, then his scam will come at least partly at the expense of the fruit stand. The reason is that many potential fruit stand customers will have their wallets drained at the meat stand and won’t have any money left to buy fruit.
The drug companies’ efforts to get increased patent protection, along with the computer and entertainment industries efforts to get stronger copyright protection, will have the same effect. Insofar as they can force other countries to pay them more in royalties and licensing fees or directly for their products, these countries will have less money to spend on other goods and services produced in the United States. In other words, the short-change artist in the next stall is not our friend and neither are the pharmaceutical, computer, or entertainment industries.
However these industries all have friends in the Obama administration. As a result, these trade deals are likely to give them the protections they want. The public may not have the power to stop the high-powered lobbyists from getting their way on these trade pacts, but it should at least know what is going on. These trade deals are about pulling more money out of their pockets in order to make the rich even richer.
Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.