In his plan for his first day in office, Donald Trump announced that he is ready to withdraw the U.S. from the Trans-Pacific Partnership, which he called a “disaster.”
The administrations of TPP partner countries have reacted negatively, arguing that the U.S. is foregoing a strategic opportunity, rendering the agreement “meaningless.”
In spite of the fact that the inter-governmental treaty is said to “deepen economic ties and boost growth, including by reducing tariffs,” Trump’s plan is nonetheless a correct one, all other things equal. The key to understanding why this is so lies in that word, “including.” That is, the TPP will compensate for any reduction in tariffs by an increase in red tape and other regulations, such as “labour and environmental standards, copyrights, patents and other legal protections.” Otherwise put, TPP partner countries have definitely ensured, in drafting the treaty, that special interest groups are protected to the detriment of the consumers and businesses which do not use political channels to make profits.
Is Trump’s decision a definite step toward free trade? Not yet. The President-elect would have to further make good on his promise to cut the regulations now stifling American business, but also follow through with deregulation of foreign business activity in the U.S. Not via complicated multilateral and bilateral treaties, but by simply stepping out of the market and letting profitable commercial relationships develop on their own. As Mises pointed out, trade protection is harmful to any nation, regardless of its size or weight in the international arena:
1. If protection is granted to one branch of production or to a few branches only, those privileged are benefited at the expense of the rest of the nation.
2. If protection is granted to the same extent to all branches of domestic production,… nobody can possibly derive any net profit. What a man profits on the one hand qua producer, he loses on the other hand qua consumer. Moreover, everybody is hurt by the fact that production is diverted from those lines in which its physical productivity is highest; all nations and every individual are injured by the fact that less favorable conditions of production are exploited, while some more favorable remain unused.
3. It is vain to try to “improve” the balance of trade by import restrictions. But for capital transactions (foreign investments and foreign loans and the payments resulting therefrom), gifts and tributes, the total value of the commodities sold and the services rendered to foreigners exactly equals the value of the goods and services received.
4. The advantage derived from foreign trade lies entirely in importing. The exports are only the payment for the imports. If it were possible to import without exporting at all, the importing country would not suffer, but enjoy prosperity.”
Is it likely that Trump’s otherwise correct rejection of the TPP will truly become an unexpectedly beneficial move for free trade? The jury is still out on this one.