PLEA Network

7 October 2015, The Conversation, Oh no, we forgot about China – the flaw at the centre of the TPP.  Like many trade policy initiatives, the newly finalised 12-nation Trans-Pacific Partnership (TPP) is motivated by a desire to help domestic exporters get better foreign market access. The key idea is one of mutual concessions – in exchange for foreign market access we give up some of our own subsidies or protection. Despite the headlines, however, the TPP agreement has little to do with the economic argument for free trade. This is because the economic gains from trade trade don’t come from exporting more, or from preferential market access. They have nothing to do with mutual concessions. Rather the gains from trade are derived from being able to import at lower prices. This means that costs of trade barriers are incurred by consumers in the country that imposes the trade barriers. Consequently the benefits of free trade can be mostly gained by removing one’s own trade barriers. This is the approach the Australia took toward trade policy when it unilaterally reduced tariffs throughout the 1980s and 1990s. This generated economic gains to Australians and didn’t require armies of lawyers and bureaucrats to manage the preferential access as rules of origin or tariff schedules. When one thinks about the costs of trade barriers and the benefits of trade liberalisation in these terms, it is easy to see major flaws in the TPP as an economic policy. Firstly because tariff barriers are all already very low between the member countries, any economic gains that might be realised by mutual concessions are likely to be exceedingly small. Reasonable estimates come up with numbers like one tenth of a percent of GDP. This, as the Nobel Laureate and economist Paul Krugman notes, is hardly world-shaking. Second, the TPP is an international club with exclusive benefits for members. Like any selective club, it’s not so much about who you let in, but who you keep out – like China. Read More here