Mises Wire

The TPP and the Trade Rhetoric

After 19 rounds of negotiations spanning 5 years, hosted along the Pacific Rim from Bali and Lima to Hanoi and Hawaii, the TPP (Trans-Pacific Partnership) was signed yesterday in Atlanta by all 12 member governments and remains only to be ratified by each country.  Although the text has not been made available to the public, and will not be for the next four years to avoid opposition, the TPP is publicized as a tremendous boost in free trade for the signing countries, and thus for almost 40% of world trade. It is supposed to ‘promote’, ‘enhance’, and ‘support’ many things, from innovation to investment and development, and job creation.

The language used, characteristic now of all such governmental agreements, is a clear indicator that the TPP is nothing more than additional thousand(s) of pages of new trade regulations, with a sprinkling of tariff reductions that will benefit some industries and companies, and hurt others. According to the Office of the Unites States Representative, the TPP includes chapters on no fewer than 22 issues: “competition, co-operation and capacity building, cross-border services, customs, e-commerce, environment, financial services, government procurement, intellectual property, investment, labour, legal issues, market access for goods, rules of origin, sanitary and phytosanitary standards, technical barriers to trade, telecommunications, temporary entry, textiles and apparel, trade remedies.”

This illustrates what Ludwig von Mises pointed out half a century ago: that the focus of these agreements has long shifted from trade liberalization (defined as removal of barriers) to trade regulation (or what we know today as “managed trade”) and the promotion of special interests. As Mises showed, “each country has a system of varying privileges for individual interest groups… [and] none of these measures would work if foreign countries were to freely supply the domestic market.” (Mises to Hoenig, letter dated December 6, 1951). Trade agreements only extend the regulatory power of governments and their ability to grant such privileges.

For free trade, in fact, multilateral negotiations, tax-funded conferences, and lengthy agreements are superfluous. Richard Ebeling—in a great piece addressing the various trade fallacies which underpin trade negotiations—has drafted a four line piece of legislation sufficient to replace TPP if its purpose were indeed liberalization. But the true goal of TPP is shrouded in rhetorical tricks. As Rothbard amusingly wrote about the NAFTA myth,

The folks who have brought us NAFTA and presume to call it “free trade” are the same people who call government spending “investment,” taxes “contributions,” and raising taxes “deficit reduction.” Let us not forget that the Communists, too, used to call their system “freedom.”

A real free trade agreement should be short and unilateral. It would then truly allow the market to bring about a pattern of international trade in line with the scarcity of resources and with entrepreneurial judgment about their most efficient international allocation. The TPP, on the other hand, was created to interfere with this pattern: to distort it for more political power or for more economic gain for some groups or others (in the present case the rice producers in Japan or the auto industry in the US). It was created to take trade flows from the course prescribed by voluntary agreements and divert them into that prescribed by political agreements.

Furthermore, the TPP will not operate in a vacuum, as it is in fact signed by 12 interventionist states. Whatever measures exist in the TPP that might reduce trade costs will be thwarted by other regulations. As Mises also explained, “under a regime of government interference with business a government has innumerable means at hand to penalize imports. They may be less easy to handle but they can be made no less efficacious than tariffs, quotas, or the total prohibition of imports” (Mises 1944, 250).

The final and most important effect of this rhetoric is that when the TPP will fail to bring about the touted benefits—as it will not in fact promote a wider and freer division of labor—the market will become the scapegoat once more. And governments will again be called in to address the ‘market failure’. To paraphrase Elinor Dashwood (of Austen’s Sense and Sensibility), the market will suffer the punishment of a badly done trade agreement without enjoying any advantages. 

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