“Why the TPPA is a better trade agreement than you think: In a word, Vietnam.
… Vietnam will be the biggest gainer from TPP. Do you get that, progressives?
Poorest country = biggest gainer. Isn’t that what we are looking for?”
- Tyler Cowen, “Why the TPP is a better trade agreement than you think”
In evaluating the deal that places us smack bang into the world’s largest semi-free-trade zone (to be excluded from which would be, as former PM Helen Clark suggested, unthinkable), it’s worth just recalling why human beings trade at all: because as Frederic Bastiat pointed out many years ago, left to our own devices few if any of us would be able to produce enough just to get through a mild winter, let alone produce enough to survive and flourish and hang around long enough to produce a mid-life crisis and a second family. We can’t produce enough on our own, yet when we trade with each other the products of our efforts we can, and we do. (Turns out we’re so helpless that, without trade, even a simple sandwich is beyond our individual means.)
As John Stossel would say, “What could be more benign than the freedom to trade with whomever you wish?”
Somewhere or other, I’ve called this the Miracle of Breakfast, the realisation that the division of labour is as benevolent as Adam Smith once explained.
Trade between nations connects us to the worldwide division of labour.
Trade between individuals demonstrates how trade benefits each party to the trade—the double thank-you moment demonstrating that we each benefited from the exchange.
How many times have you paid $1 for a cup of coffee and after the clerk said, "thank you," you responded, "thank you "? There's a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.
Economists have long understood that two people trade because each wants what the other has more than what he already has. In their respective eyes, the things traded are unequal in value. But this means each comes out ahead, having given up something he wants less for something he wants more. It's just not true that one gains and the other loses. If that were the case, the loser wouldn't have traded. It's win-win, or as economists would say, positive-sum.
We experience this every time we have that double thank-you moment in a store or restaurant.
It is just bullshit to say that because NZ has already removed most of its tariffsNZ negotiators were arguing with one hand behind their backs, with is about to get our pants down. The benefits from trade accrue not just because we allow access to our markets—to use the language being bandied around by peak-Kelseyites—but because the benefits of trade increase exponentially as the network of exchange expands. And this semi-free-trade deal expands the network about as far as it’s politically possible to go.
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The two facts at the heart of free trade’s many benefits are these:
- that we each trade to get the things we want, and
- we all want very different things
Of course, we don’t need volumes of paper to make a “free-trade deal.” All it takes for free exchange to happen is 1) legal protection for contracts and 2) no outright bans. (In Adam Smith’s words, "the Division of Labour is limited by the Extent of the Market.")
But free exchange can be hampered. It can be hampered by distance—which is why people build shipping lines, roads and railways to get goods and people to markets more easily and more cheaply—or it can be hampered by tariffs and quotas that make getting goods and people to markets is more difficult and more expensive, all but cancelling out the many benefits of those shipping lines and railroads. No wonder Bastiat likened the effect of tariffs and quotas to a negative railroad—one with so many breaks in the track that costs and delay are as certain with the railroad as they are with tariffs and quotas.
I have said that as long as one has regard, as unfortunately happens, only to the interest of the producer, it is impossible to avoid running counter to the general interest, since the producer, as such, demands nothing but the multiplication of obstacles, wants, and efforts. . .
Whatever the protectionists may say, it is no less certain that the basic principle of restriction is the same as the basic principle of breaks in the tracks: the sacrifice of the consumer to the producer, of the end to the means.
The TPP deal doesn’t take away all the breaks in the track, but it does remove many of them:
In terms of the substance, there seem to be three broad themes.
- Eventual elimination of all tariffs in all industries except beef and dairy
- Minor concessions from Canada on dairy but better deal with Japan on beef (tariff dropping from 40% to 9%)
- Most of the potentially “bad”* stuff has been resisted (change to Pharmac model, the US demands on ISP liability for copyright, tobacco companies can’t use ISDS provisions)
And it begins momentum to for those other breaks to be dismantled. Eventually.
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Look, the TPP looks to be about as close to full-blown, unhampered, knock-your-socks-off free trade as Andrew LIttle looks to pulling the Labour Party together. But to complain, as both Gould and Kelsey do, that because, you know, NZ dairy doesn’t achieve full tariff-free access to the US, Canada and Japan while ignoring the small sliding tariff reductions that are allowed for is like a teenager whinging because their mummy has bought them the wrong coloured iPhone for their birthday.
It’s not full free trade—but trade between the 12 nations will be freer than it is now. There is some cronyism, but since even the cronies are quietly whimpering about things there’s less clearly less than they thought they paid for. So on balance, there are more reasons to be for than against-and being against would be to make the perfect the enemy of the good.
And since the increasing expansion of the worldwide division of labour has already meant around 138,000 people have nbeen moved out of poverty every day for the last 25 years, unless you think that’s a bad thing rather than a good, the you and I would surely see very little to complain about that expansion continuing.
* “Bad” is by the estimation of David Farrar, whose summary this is. There is much to be said about each of these things at some point, but suffice to say now that extended 12-year patent protection for drugs pertains not to present drugs but to future miracle drugs, preserving at least some part of the golden goose that will help us all age disgracefully.
Oh, and NZers are moochers on foreign drug producers and consumers