Why “Trade Deals” Are Even Worse Than Tariffs

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Conventional wisdom holds that treaties represent countries getting together peacefully to advance humanity’s goals, while tariffs represent dog-eats-dog negative-sum competition that can provoke wars. Yet treaties, being complex and negotiated in secret, are mostly the work of rent-seeking bureaucrats, whereas the competition of tariffs provides international relations with valuable grit, preventing countries from conspiring together against ordinary people. As new treaties get sillier, it becomes clearer: they do far more damage, economic and to liberty, than do tariffs.

To take a historical example first, the mechanism by which treaties were arranged changed fundamentally between the 1815 Treaty of Vienna and the 1919 Treaty of Versailles. In the former case, two monarchs (Alexander I of Russia and Frederick William III of Prussia) and three ministers (Metternich of Austria, Talleyrand of France and Castlereagh of Britain) were able to sort out their differences man-to-man, with none of them having a separate bureaucracy, expert advisors or democratic electorates to which they were responsible.

The result was a settlement that had none of the defects of modern treaties, being negotiated between a few rational men with full responsibility for the welfare of their countries. When the process got jammed, with Alexander I and Frederick William III being difficult about the fates of Poland and Saxony, the three true experts, Metternich, Castlereagh and Talleyrand, each skilled almost without parallel in the history of diplomacy, were able to untangle the knots between them and present the solution as a fait accompli. The result was a settlement that brought a century of peace, which need not have ended there had there been rational statesmanship in 1904-14.

Versailles on the other hand had the defects of modern treaty-making. Each of the three principals, Woodrow Wilson, Lloyd George and Clemenceau, were heavily influenced both by irrational ideologies and domestic political commitments. Clemenceau’s case was easiest to understand and most forgivable: he shared the French desire for revenge after the Franco-Prussian War, exacerbated by the immense destruction of World War I. No mild and well-considered Treaty of Vienna-type settlement would have been acceptable to him.

Lloyd George had an irrational hatred of the hereditary aristocracy – so much for preserving the benign and economically fruitful regime of Austria-Hungary. He had also just won an election on the slogans of “Hang the Kaiser” and “Make Germany Pay,” so was not about to design a non-retributive peace that would allow Europe to bury old hostilities.

As for Wilson, he had a naïve faith in the possibility of a world organization that would preserve peace, an undying faith in the ability of intellectually superior bureaucrats to reorganize people’s lives for their own good, and an inner conviction of his own righteousness that allowed him to apply the principle of “self-determination” in central Europe without bothering to hold any referenda.

The true interests of the peoples of Europe and the United States: returning to peace and prosperity and above all avoiding a further outbreak of war, were completely ignored by the designers of the Versailles Treaty. Sadly, that has become only too universal in modern treaties, which have followed the Versailles pattern of undying faith in self-interested bureaucrats rather than the Vienna pattern of highly able disinterested people skillfully working to a solution. Bilateral treaties occasionally achieve something useful; multi-national treaties are almost always damaging.

A partial review of treaties signed within the last 30 years illustrates this perfectly:

1989 Montreal Protocol: This has been the most effective of the ten treaties discussed here; it has reduced the amount of chloro-flourocarbons in the atmosphere by about 10% over the 30 years since its ratification. Its scientific desirability also appears to be reasonably solid. However, black market supplies of CFC-11 are common and the treaty has been systematically flouted by China, which gains an economic advantage from doing so.

1992 Maastricht Treaty: This treaty was stitched up by EU bureaucrats, and converted the European single market, for which British voters had voted in 1975, into the beginnings of a European Union, for which no democratic mandate has ever been given. It was not put to a referendum in Britain, and Denmark, which rejected it in a referendum, was made to vote again. The entire process was disgracefully undemocratic. By taking away without a vote the option of a simple economic association, it led to the 2016 Brexit vote to leave the EU.

1994 Marrakesh Agreement: This marked the high point of world free trade, ratifying the Uruguay Round of trade talks and instituting the World Trade Organization, an unaccountable supranational body. It has never commanded anything close to majority support in its member nations, which through the improved communications of the Internet have found their manufacturing industries sucked into the Third World and their living standards decimated. Not surprisingly, it marked the absolute high point of the global free trade movement, which now appears to be in severe retreat. Presumably the overstuffed globalist WTO bureaucracy will remain even after all purpose for its existence has vanished.

1994 NAFTA: Provided the “giant sucking sound” of jobs to Mexico forecast by Ross Perot in 1992; it has done very little good for the United States and appears to have damaged substantially Mexico’s economy and political system. Linking the generously paid U.S./Canadian economy with the impoverished Mexican one was always likely to be damaging, though to be fair the Marrakesh Agreement has probably damaged U.S. living standards more than this one.




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