New study makes the case for more US free trade deals

Do free trade deals work? A new study by the International Trade Commission (ITC) says the ones the U.S. has signed have had a small, positive effect on the economy. Protectionists will insist that this means free trade deals do little. That’s wrong. What the study really shows is that the U.S. needs more free trade deals with large markets, and rules that are deeper and broader than the World Trade Organization (WTO).          

The media have tended to see things differently. Politico, for example, explains that the study is “unlikely to spur the Biden administration to negotiate new trade deals.” The betting is that Biden will calculate that the benefits from free trade deals – which the study pegs at $88.8 billion in gross domestic product and 485,000 jobs from 1984-2017 – are not worth the political cost. 

These may not seem like big numbers, but they’re impressive when you consider a few facts about U.S. free trade deals.

First, with the exception of the U.S.-Mexico-Canada Agreement (USMCA), the U.S. doesn’t have free trade deals that look like big economic prizes. The list includes Bahrain, Chile, Jordan and Oman, not the European Union (EU) or Japan. Forging closer political ties with countries in the Middle East and Latin America, rather than gaining market access, has been the motivation for most U.S. free trade deals to date. 

USMCA, which doesn’t factor in the ITC’s estimates, reveals several challenges inherent in the study. One is that, like the North American Free Trade Agreement (NAFTA) before it, the majority of USMCA’s chapters tackle non-tariff barriers and other issues that are difficult to quantify. Unlike tariffs, they don’t work through prices. They’re about cutting red tape and making regulations more transparent, for example. The ITC concedes that this prevents a fuller accounting of the benefits of trade liberalization. That’s putting it mildly. 

Second, U.S. free trade deals have recently gotten deeper and broader, but USMCA isn’t accounted for in the study, and President Trump withdrew from the Trans-Pacific Partnership. This leaves the ITC looking at a handful of outdated agreements, like U.S.-Korea from 2012. The reality is that, without modern “WTO plus” provisions, free trade deals can’t help but reinvent what the U.S. already gets through the WTO, making them less beneficial.

Moreover, the study likes the evolution of many “WTO-plus” provisions in U.S. free trade deals. In services, for example, which employ 79 percent Americans, the U.S. has achieved more market access through these free trade deals than at the WTO. On technical regulations, which cover 92 percent of U.S. exports, free trade deals have done yeoman’s work in curbing disguised restrictions on trade. Finally, on e-commerce, first written into U.S.-Jordan way back in 2001, U.S. negotiators are now insisting on rules that industry experts see as the “gold standard” in digital trade. 

The other missing piece to the study is how the U.S. is faring in the race to get free trade deals. The benefits the U.S. ultimately gets from USMCA, for example, depend on what Canada and Mexico get with other countries. Canada and Mexico both have bilateral agreements with the EU. If the U.S. doesn’t get one too, USMCA can’t possibly deliver on its promise.

Back to the Politico prediction. It’s true that the Biden administration doesn’t appear to be in a rush to start negotiating free trade deals. It’s also true that the ITC study will be spun by protectionists to keep it that way. But in finding that a handful of outdated free trade deals are still benefiting the U.S. economy, the ITC study makes the case for more U.S. free trade deals that are built on cutting-edge WTO-plus provisions. 

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University and a nonresident senior fellow at the Atlantic Council. You can follow him on Twitter @marclbusch.