Trade agreements are supposed to be permanent because certainty promotes stability. Or so the thinking has been for the past few decades. The reaction when a sunset clause was included in the new NAFTA was almost uniformly one of horror: the instability of such a thing! The effects on investment! Trade flows! Peace! Prosperity! It’s so unorthodox – like wearing white before Memorial Day!
How are we feeling about certainty now?
“Certainty” in the global trading system ended up as moral hazard. Companies offshored to the People’s Republic of China, “certain” that they could export back to the United States duty-free (or pretty close to it). “Certainty” meant that the PRC could embark on a mercantilist, autarkic global strategy, knowing that WTO Members would be so afraid of “disruption” that they would never put to a stop it. “Certainty” has Members of Congress unwittingly acting as agents of the PRC by opposing mechanisms that are part of our diversification away from a regime that deploys forced labor camps in a return to “re-education.” “Certainty” let our trading partners get away with rules in TPP that would lock in existing Chinese supply chains, even as leaders touted the agreement as some sort of bulwark against the PRC.
Make no mistake: this core supply chain flaw is reflected in every single bilateral and regional agreement we have on the books. Israel; Jordan; Australia; Singapore; Chile; DR-CAFTA; Bahrain; Morocco; Oman; Korea; Peru; Colombia; Panama.
And even the new NAFTA.
For all its emphasis on the China problem, the Administration doesn’t really understand how all the pieces fit together.
As we are now painfully aware, that hideous supply chain dependency is on a hostile authoritarian power – a power that
- is exporting a disinformation campaign that blames the United States for intentionally starting the pandemic;
- seems to have gotten the World Health Organization to play down the pandemic, costing untold lives;
- ejects journalists who are reporting on what’s actually happening, instead of purveying CCP propaganda;
- is poised to inject a new round of subsidies into its manufacturing base that will continue to make it impossible for market-oriented firms to compete.
It turns out that certainty has been destabilizing.
Now that there’s serious talk of fixing the supply chain dependency, the CCP is freaking out.
Our effete trade policy is the result of a persistent hubris among economists and trade negotiators that we have achieved some sort of maximum state of enlightenment, and that everything we negotiate today will be valid tomorrow, and forever after. We fail to recognize that things change, that our information is imperfect, that our understanding of the economy is always evolving – that economics is not a hard science, like chemistry, or physics. Even those fields recognize that our knowledge is imperfect and our understanding of the world always evolving – and that we must adapt with it.
Einstein didn’t come up with the theory of relativity by relying on his freshman physics textbook. But that’s the level of analysis we’ve been operating on as we smugly tell everyone trade is always good because my freshman Econ prof said so. One of the best exposés of relentless hubris in economic policymaking is This Time is Different, which walks us through the myopic arrogance that leads to one crisis after another.
In fact, the “perfect information” upon which we’ve relied is selective. It’s based on a misunderstanding of history and an ignorance of the wisdom of those who came before us. It’s narrow-minded, and it’s stubborn. And it ultimately creates uncertainty.
For all our perfect information, we have been less informed than a 19thcentury poet who died at 29:
And as a result, we now find ourselves