An unexpected, at least by me, turn of events in the trade policy landscape is the Trump administration’s announced preference for bilateral rather than plurilateral (TPP) or multilateral (WTO) negotiations. While it is encouraging to learn that they are in favor of negotiating — there was some doubt about that after statements made during the campaign — there are four reasons why they have seized on the wrong strategy.
First, bilaterals are inefficient. These days, with the low hanging fruit of tariff reductions already largely picked, our negotiations are mostly about rules. Indeed, our anticipated gains in TPP related primarily to improvements in IP protection, rules for digital trade, and disciplines on state owned enterprises. Those are all disciplines that an economy of innovation like ours needs to defend itself. By promoting them collectively in a plurilateral framework we not only establish rule of law but rule of our laws which will stand us in good stead competitively. Proceeding bilaterally means, in the case of TPP, having five negotiations rather than one (there are five TPP members with whom we do not already have an FTA), and, potentially, five different sets of rules which may not be compatible with others — a nightmare for business compliance and government enforcement.
Second, a plurilateral negotiation means a bigger pie to share. Given our relatively open economy, we may not have much to offer a bilateral partner in return for what we are asking, but in a larger framework countries can calculate gains from more than one source. In addition, we have learned from experience that countries might be prepared to concede things in a larger group that they are not prepared to concede directly to the Americans. We are not the only country with domestic politics, and for many countries standing up to the Americans is good politics, whereas being the outlier in a group effort that includes regional friends is not.
Third, the premise that we get our pockets picked in plurilateral negotiations is simply wrong. If you talk to current and former negotiators you will learn that the process does not consist of the U.S. lurching from party to party making separate concessions. While some issues may be negotiated bilaterally because they are of specific concern to only two countries, most reflect a collective effort in which countries calibrate their offers to what they can get from all the members of the group rather than a single member.
Fourth, leverage with sovereign countries is not the same as leverage with other real estate developers. The argument for a bilateral negotiation is, apparently, that because we are big and the other guy is small, we can push him around and get our way. Of course, the other guy is not always small — witness China, Japan, India, and Brazil — so the premise is flawed from the beginning. Even if our partner is small, however, we should have learned from past negotiations that sovereign nations dance to their own tune, even to the point of making decisions that might not be in their long term interest but which are unquestionably in their short term political interest. If the administration continues its predilection for offending world leaders, it will find that not having any friends makes a difference in trade negotiations as well as other aspects of diplomacy.
Finally, if you want to see both irony and hypocrisy at work, pay attention to the looming NAFTA negotiations. The administration has recently started talking about upgrading NAFTA by addressing issue like digital trade and state-owned enterprises that were not covered in the original agreement. Good idea. The business community has been urging that for months. But where will the language for those “new” provisions come from? In all probability, from TPP, where the topics were thoroughly addressed. So, it appears we are going to take a “terrible” agreement — NAFTA — and fix it by adding language from an even worse agreement — TPP. This would actually be a smart thing to do, but it will be interesting to watch our negotiators explain it with a straight face.