The most interesting aspects of economics and politics occur at the interface between the two and the current trade negotiations over the Transatlantic Trade and Investment Partnership (TTIP) deal have brought into sharp relief that interface. Economic theory, especially the theory of comparative advantage, suggests that free trade, by which we mean trade with no tariffs or other barriers, creates welfare gains and is therefore economically efficient. So far, so obvious. However, as anyone with a knowledge of economics can explain, the benefit lies in the ability to buy goods and services from other countries at a lower price than you can produce them yourself, rather than the ability to sell your exports to other nations. Donald Trump continually comments that the US is getting, “killed”, in trade with China because US citizens can buy Chinese imports at low prices because the US has low tariffs, whereas the Chinese impose high tariffs on US exports so the US sells relatively little to the Chinese. The theory of comparative advantage suggests the US economy benefits whether the Chinese buy US exports or not because US citizens can buy goods and services from China at a lower cost than they can produce them domestically. Mmm……Perhaps Mr Trump would like to revisit Economics 101?
Anyway, this is all an aside, albeit an anti-Trump one. The main question revolves around the interface between economics and politics and international trade shows this all too clearly. According to economic theory the TTIP deal should reduce barriers to international trade and is therefore “A Good Thing”. However, the politics of it are much more complex and reveal a growing fault line in international relations. Whilst we increasingly trade and exchange globally, we tend to keep our political loyalties nationally. What happens then, if an international trade agreement like TTIP says that national governments are not allowed to subsidize domestic industries because it distorts international trade, but we vote for a political party at a national election which says that if they win power they will safeguard domestic industry with subsidies? Our political thinking takes us in one direction and our economic thinking takes us in another.
The French government has made it very clear which direction they favour by saying, “Non”, to further TTIP negotiations. The French President, Francois Hollande, recently commented that, “We will never accept questioning [by an international trade deal of] essential principles for our agriculture, our culture and for the reciprocity of access to public [procurement] markets”. If French voters support his party in forthcoming elections then he can claim to have a political mandate to put a stop to the TTIP agreement, whatever the economic logic behind it. The current discussion over Brexit can be seen through the same prism.
In conclusion, it will be interesting to see where TTIP goes in creating a framework for international trade which places itself above national political institutions. For those of you who study politics the question might be, “Where does this leave parliamentary sovereignty in the UK?”
Link to an article from The Independent here: