Free Trade Is Expanding, Just Not With the U.S.
New U.S. tariffs on as much as $7.5 billion of exports from the European Union have brought another reminder of how trade wars and protectionism dominate the news.
Yet in the last two years, countries accounting for more than one-third of global output have signed more than a dozen trade treaties. When historians look back, they may depict this as a time when free traders set new rules for decades to follow. So what’s with all the pessimism? Answer: The U.S. isn’t part of this dynamic opening.
It is others that have taken up the free-trade mantle. Japan salvaged the Trans-Pacific Partnership that the U.S. abandoned, rallying the 11 other members to rechristen it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and push it into force last year. At the same time, Japan, the world’s third biggest economy, sealed a deal with the world’s second biggest economy bloc, the EU. Europe, meanwhile, was also signing pacts up and down the Americas, from Canada to South America’s Mercosur nations (the latter negotiations two decades in the making).
It isn’t just G-7 nations jumping into the trade game. African countries are opening to each other through the African Continental Free Trade Area. And Latin America’s outward-looking Pacific Alliance has expanded beyond its four founding members to welcome more than 50 observer nations.
These new trade agreements go far beyond tariffs. They take on sticky agricultural subsidies and costly duplicative testing and labeling, open up financial and telecommunications sectors and let other nations’ companies bid for government contracts. They boost protections for workers and intellectual property, help small and medium-sized businesses sell abroad, and even lay out ways to take on corruption.
Once a leader in such efforts, the U.S. has kept its distance from all of this trade rule-making. Sure, it just signed a limited pact with Japan that should increase U.S. exports of beef, wheat and other farm products. But the arrangement stops far short of what the U.S. would have gained if it had stuck with TPP.
The U.S. absence limits the economic heft of these new agreements. And it diminishes their geopolitical importance: The CPTPP won’t constrain China in the ways the U.S.-led version could have.
But it matters, too, for the U.S., hurting its companies and workers. Other countries’ exporters now have a leg up with more than 2 billion consumers. And if and when the U.S. decides to join back in, it will have much less say over trade rules.
Suzuki motorcycles now have a 10 percent cost advantage over Harley Davidsons in German showrooms. They also no longer have to run a gauntlet of extra safety and emissions tests. Australian sirloin avoids the 30 percent tariff rates that Texan cuts still pay in Japan. And Canadian wheat now costs almost one-third less than U.S.-grown crops in the 11 CPTPP markets. U.S. exports of cheese, wine, meat and dozens of other products are being edged out by these insider benefits.
The rules and standards being adopted aren’t always those favored by the U.S., either. Take geographic indicators. These ensure that products made famous in one place can’t be copied elsewhere. The Europeans have long been big proponents, protecting French champagne, Balsamic vinegar, Manchego cheese and thousands of other products. The U.S. counters that parmesan, provolone, vermouth and so many others are generic names that anyone should be able to use.
The new agreements expand the protected list. They limit Wisconsin dairy farmers’ ability to sell Feta cheese in Canada or Japan. California can no longer send sparkling wine labelled as Prosecco. Dozens of other product names have been thrown into doubt. And needless to say, the new agreements don’t protect Kentucky bourbon, Idaho potatoes, Florida oranges or Vermont maple syrup from imitation.
The way trade disputes are handled also differs from U.S. templates. EU deals favor permanent tribunals over ad hoc panels, and make it harder for companies to bring grievances in the first place and to prove their cases. New CPTPP language also raises the threshold for suing governments (though if and when the U.S. rejoins CPTPP, the old rules could return).
The lifespans of patents and copyrights are now shorter. And privacy rights and data protection are being defined in ways that could hold back Google, Facebook, and other U.S. social media champions.
More broadly, U.S. standards are less likely to be the last word internationally. From car emissions to food standards, clothing labels to electronic testing, European and Japanese directives are gaining ground with each new arrangement. Down the road, U.S. companies may have to adapt their ways of doing and making things (which costs money) rather than the reverse — yet more erosion of U.S. dominance and authority.
Nearly all of these nations would embrace a U.S. return to the trading fold. Its CPTPP partners purposefully just suspended rather than erased the U.S. red line issues from TPP, hoping and expecting that the U.S. would return. At the same time, these nations aren’t waiting. And the longer the U.S. sits on the sidelines, the more these new agreements will reshape supply chains and world markets, leaving the U.S. in the unfamiliar position of a rule-taker rather than a rule-maker.