Economists have been making the case for free trade for more than 200 years, so the Conservatives’ decision to commit to deadlines for trade agreements is something to be welcomed. But my enthusiasm is greatly attenuated by the fact that the Conservatives are justifying the move for the wrong reasons.
The old mercantilists viewed trade as a way of favouring exports; the goal of international trade policy was to produce surpluses, and trade deficits were to be avoided. This view is wrong, but its continuing appeal is a testament to how difficult it seems to be to explain the basic elements of international trade theory.
It hasn’t helped that the arguments used to support the move to freer trade are invariably based on showing how exports would increase; Martin Wolf once referred to the GATT as “a disarmament treaty for mercantilists”. And that is how the Conservatives are selling trade agreements with the European Union and India: as a way of increasing Canadian exports.
The real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically. The proper way to view exports is as a cost: in an ideal world, foreigners would provide us with an infinite amount of imports for free.
One reason why the EU treaty is taking so long is that one implication – foreign competition in government procurement – is being treated as a cost, when of course the possibility that taxpayers might obtain more for less should be treated as a benefit.
Today’s news is welcome, but trade policy would be much more sensible if our governments stopped confusing what the costs and benefits of international trade really are.
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