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A Quick Objective Look at Trade Agreements

  • February 29, 2020

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A Quick Objective Look at Trade Agreements

The past year has seen a lot of negative media attention cast toward trade agreements. Formerly held as a hotly debated topic for economic students across the country, the discussions on trade and economic policies have moved to the front pages of newspapers. If you are like your fellow Americans, you have long forgotten high school courses coverage macro and microeconomics. This puts you are a disadvantage in trying to understand what the fuss is all about. Here is a short review of trade agreements and what they mean for the future of the economy.

Why Trade Agreements are Desirable

When it comes to an interdependent world economy, a country’s economic policies will establish its position for its businesses and citizens across the globe. Therefore, reciprocity becomes the driving factor behind a trade agreement. Trade policies that are established unilaterally are self-serving, with the participating countries choosing policies that will serve its own interest. Governments are able to shift the burden of their potential policy repercussions when international agreements are established. However, despite the cry that trade arguments actually lead to free trade, the political motivations or objectives of the government forces create self-serving platforms, where the interest of foreign exporters are often ignored.

Many countries also sign into trade agreements to avoid being left with the crumbs of the market. Most often, preferential market access is granted to member countries that have participated in a regional agreement. Despite having significant resources or products to offer, countries that are left out face higher costs when trying to gain a foothold in these semi-closed markets. The governments of low or middle-income countries often pursue trade agreements as an economic reform venture. Protecting vested interest on the home front may block prospects of change, such as has been seen with Mexico, yet a trade deal applies the right political pressure and excuse to follow through with reform measures.

Legal Support for Participating Countries

The more modern trade agreements incorporate legal protections for its members, both with dispute settlement protocols and property rights protection. As with any opposing yet equally vested parties, disputes can arise over agreement compliance and the delivery of services or goods that were promised. Any disputes are taken before a judicial body that rules on the issue, and for the United States, the country has won more of these cases than it has lost. However, this is a serious concern with trade agreements. The government body isn’t always able to protect the interests of its people, as it must defer to the rulings of the foreign body.

Product values and property rights are also protected through trade agreements. As a company looks to join a supply chain, demands are often made that any property rights will be respected. There are many who feel that poor trade agreements and a lack of protection for production create job loss. These thoughts underlined the attack on NAFTA, as the U.S. automobile sector was said to have suffered massive job loss as production went south of the border into Mexico in efforts to save money. Any bank that funds or arranges international trading ventures, such as the North American Development Bank (NADB) or the GBTI, will tell you that the lesser-known benefits of trade agreements do more to spur increased market potential beyond just the country-to-country partnership. The negotiations of a trade agreement can be used to enable more robust global supply chains.

Foreign Policy Redefined

Following the Second World War, the dynamics of international alliances shifted. Global superpowers emerged and new faces became dominant policymakers and enforcers. It took the creation of the General Agreement on Tariffs and Trade (GATT) to bring back peaceful relationships between global communities. When the Soviet Union and its allies took on a menacing position in the Cold War, the democracies of Europe, North America, and Asia used trade integration to address the situations and establish solidarity against the demonstrations of aggression. For many countries, regional and bilateral agreements are used as a tool to bring about economic and political reform in their emerging markets.

Effects of Agreements

In spite of what you may hear in the news or around the table when chatting with your current event savvy friends, trade agreements are only a small part of the globalization process and have minimal impact on job loss. Stagnant economies in India and China have been reborn through the tech developments in communication, production, and transportation. Countries have long been following duty-free protocols and removing tariff barriers with certain products or countries, leading to a more uniform growth of economic prosperity across that globe independent of trade agreements. As such, trade agreements have neither held up nor created a marked improvement in the global economy. In fact, the reforms occurring in emerging market economies have done more for global growth and prosperity than trade expansions between individual countries.