Transcription
Translator: Mirjana Čutura Reviewer: Peter van de Ven
Hello, everybody. I want you all to come away from the next 10 minutes with a single counterintuitive idea: trade deals aren't really about trade, not in any conventional sense of the word. They're not about tariffs, they're not about quotas, they're not about GDP growth, they're not even really about jobs.
That's how we tend to talk about it: job loss and job gain. That's what's in the news, and that's what's at the DNC, but that's not what they're really about. Not really. And we'll get to that, but for now, I want to start at the very beginning.
The modern era of free trade, as we think of it today, started in about 1944, when all the great lights of liberal economics got together in Bretton Woods, New Hampshire. At the time, the world was in a pretty dark place. All the people there remembered World War I, they lived through the Depression, World War II was still raging across the Atlantic. At the top of everyone's mind was world peace: how do we create an economy that fosters and necessitates world peace? That was the entire idea.
And they seized on this idea of economic interdependence. The idea was that if nation states were dependent on each other for their supply chains, then they couldn't go to war with each other. If Germany needed France for its coal and France needed Germany for its steel, then they couldn't go to war with each other. So, that was the idea behind what became, about four years later, the GATT, the General Agreement on Tariffs and Trade.
This little document created the world as we know it today. It created globalization, it created outsourcing, it created multinational corporations as we think of them. It's hard to imagine a world without McDonald's and global corporations and the sort of structure that we have now. But the General Agreement on Tariffs and Trade is what did it. We created this. And it brought on this period of extraordinary disruption and convulsion and prosperity.
From about 1948, when the GATT was first signed, till the late '70s, the global GDP grew by about seven percent per year – just explosive growth. And for a while, people thought that wouldn't end, that was just it – we had cracked the code. But then it began to wane.
In the late '70s and early '80s, a new generation of liberal economists got together for a second time: a new Bretton Woods. Only this time, it was the Uruguay Round, and it lasted for eight years. The scenario there was a little different. Instead of world peace and economic interdependence, they were really motivated by global efficiency: How do we continue to boost the global economy as it has been boosted over the last 30 years? What do we do?
The scenario was different. In the 1940s, there were really high tariffs and quotas and really protectionist policies at all the borders. Lowering those could have a profound influence, but by the '80s, a lot of those quotas were pretty low, a lot of those tariffs were already pretty low. So, they began to think outside the box, and they seized on this idea of non-tariff barriers. And now, this leads into the modern era of trade I'm talking about now.
Non-tariff barriers mean it doesn't really matter how low a tariff is around a country's border if, once a product gets inside, it has to compete at an uneven playing field. So, with Jim Bean, for example, it doesn't matter if Japan doesn't have a tariff on liquor if, once it's inside Japan, it has to compete on the same shelf next to a Japanese liquor that's subsidized by the Japanese government. The idea now was to strip away all that other stuff and make the world's economy as efficient as possible.
That is the philosophy that governed trade beginning in the 1990s. In 1995, we got rid of the GATT, and we replaced it with the World Trade Organization. Around that time, before and after, we had extraordinarily powerful trade agreements – NAFTA, CAFTA, and literally thousands of bilateral investment treaties – all governed by the same philosophy: non-tariff barriers. How do you get nation states to sign on to this idea that their domestic industrial policies, their domestic laws, their domestic regulations needed to align with this global sense of efficiency? It's the whole idea.
Just take a moment and appreciate that because it's totally different than anything that the granddaddies of trade would have considered trade. In the late 19th century, David Ricardo and Adam Smith, when they were talking about trade, they were not talking about someone's domestic policy on environmental law. They were not talking about how long a pharmaceutical company's data exclusivity should last. Should it last for 12 years or 7 years or 5 years and under what circumstances? All of a sudden, that became what we were talking about when we talked about trade. And that changed everything.
To give you two examples, one of the biggest discussions about trade since the late '90s involves – or fights, really – involves the Europeans and the Americans. The Americans want to export their genetically modified beef to Europe, and the Europeans, for a variety of cultural and social mores, don't want that, don't want GMO beef. So, you have this fight because the Europeans say they're allowed for local rule and national sovereignty and democratic nations reflecting the preferences of their constituencies, they should be allowed to have those rules. And the USA, backed by the WTO, says, "No, your domestic policies are not aligning with the sense of global efficiency." That is actually a much more interesting discussion than, Is trade good or is trade bad? Suddenly, we're discussing national sovereignty, we're discussing local rule, we're discussing environmental regulations, and are we okay with them being trumped? Under what circumstances?
Here's a second example, and this happened this year in the US. In the US, if you wanted to put your tuna on the shelf and say "dolphin-free tuna" on it, you had to use methods that actually excluded dolphins. The Mexican government said, "That's not fair. That discriminates against Mexican fishermen" because Mexican fishermen fish in waters that are dolphin heavy, and they use methods that don't exclude dolphins. So, by having this law, we're actually discriminating against Mexican fishermen. And the WTO agreed. So, we have these efficiency problems. How do we think about global efficiency? How do we promote the free movement of goods and services across borders while preserving laws and regulations that prize things that aren't about global efficiency, things about racial equality or protecting the environment or public health issues? That gets us up to where we are today.
You may have noticed that the conversation about trade on the national stage right now is very confused. (Laughter) We've got both presidential candidates, who appear to be in favor of free trade but are against the Trans-Pacific Partnership, that massive trade deal connecting the United States and 11 other Pacific Rim countries. Other organizations like the AARP and the Sierra Club and Doctors Without Borders are opposed to elements of it. People are telling us, "You're either for free trade, or you're against it, or you're for globalization, or you're against it. What kind of world do you want to live in?"
Well, we're not talking about trade. We're talking about rules. We're talking about global rules, global standards, and what kind of world we want that to be. As soon as you realize that that's what we're talking about, it all starts to make a lot more sense.
I want to leave you with that idea. We created the world we live in now. Our forefathers got together at Bretton Woods, and they created this global economy, and we remade it in the late '80s and '90s with the World Trade Organization. The rules we pass and embrace are the rules of the game we live in. So, let's think about that, let's think about trade in that context. Let's think about what rules we want to embrace, what we want them to serve. Do we want global efficiency to be the paradigm, or do we want it to be something else, maybe like global prosperity? Global prosperity for normal people: farmers and ranchers and everyday Americans. It's because the rules that we pass are the rules of the game, and when we talk about trade, we're talking about rules. Thank you so much. (Applause)