Free Trade Is No Longer “Free”
US President Donald Trump’s campaign vow to renegotiate trade deals that he blamed for gutting US factories and shipping good-paying jobs overseas has reopened this debate: who benefits from global commerce.
Free trade is not free because of other kinds of bureaucratic hurdles that add costs and hinder trade, according to the head global economist at Bank of America Merrill Lynch (NYSE:BAC).
“Truly free and fair trade also requires regulating more subtle, behind-the-scenes policies that discourage imports and encourage exports,” he said in a 27 January report
One of President Trump’s 1st executive orders was to withdraw from the Trans Pacific Partnership (TPP) that the Obama Admin negotiated with a dozen Asian countries except China. President Trump criticized the trade agreement during his Presidential campaign.
President Trump also is a staunch critic of the North American Free Trade Agreement (NAFTA) approved by the Clinton Admin. Earlier this week White House spokesperson said the US may impose a 20% tax on Mexican imports to pay for a border wall between the countries.
The biggest enemies to free trade are Non-Tariff Measures that countries use to put foreign competitors at a disadvantage, according to research cited by BofA’s report
One survey found a “laundry list of complaints” among businesses that were forced to deal with red tape like “technical requirements,” “conformity assessments,” “quality control measures,” “charge, taxes and price control measures” and “rules of origin.”
Businesses can face paralyzing uncertainty from bureaucrats who set standards that “are designed, applied or enforced in a non-transparent or arbitrary manner that disadvantages foreign producers,” according to an OECD study in Y 2005.
The Non-Tariff Measures will be in the headlights in negotiations between the US and China, the world’s 2 biggest economies.
“With the Trump administration still building up its trade team it could take some time before specific demands are made,” the report said.
While President Trump has backed off from his threat to declare that China is a currency manipulator, major points of friction involve China’s alleged “dumping” of industrial materials onto world markets as the country’s overbuilt factories cannot find enough buyers.
The US has labeling, health and environmental standards among other measures that weaken imports.
“Taxpayer support to financial and auto companies during the crisis can be seen as a form of local favoritism,” he said. “Trump’s criticism of companies that move jobs to Mexico can be viewed as a non-tariff barrier.”
US goods and services trade with China totaled an estimated $659.4-B in Y 2015, according to the US Trade Representative. Exports were $161.6-B; imports were $497.8-B.
Have a terrific weekend.