Translator: Mirjana Čutura Reviewer: Peter van de Ven
Hello, everybody.
I want you all to come away from the next 10 minutes
with a single counterintuitive idea,
and that is that trade deals aren't really about trade,
not in any conventional sense of the word.
They're not about tariffs, they're not about quotas,
they're not about GDP growth,
they're not even really about jobs.
That's how we tend to talk about it: job loss and job gain,
and that's what's in the news, and that's what's at the DNC,
but that's not what they're really about.
Not really.
And we'll get to that,
but for now, I want to start at the very beginning.
The modern era of free trade, as we think of it today,
started in about 1944,
when all the great lights of liberal economics got together
in a little place called Bretton Woods, New Hampshire.
And at the time, the world was in a pretty dark place.
You know, all the people there remembered World War I,
they lived through the Depression,
World War II was still raging across the Atlantic,
and at the top of everyone's mind at the time was world peace:
how do we create an economy that fosters and necessitates world peace?
That was the entire idea.
And they seized on this idea of economic interdependence.
The idea was that if nation states were dependent on each other
for their supply chains,
then they couldn't go to war with each other.
If Germany needed France for its coal and France needed Germany for its steel,
then they couldn't go to war with each other.
So, that was the idea behind what became, about four years later, the GATT,
the General Agreement on Tariffs and Trade.
And this little document created the world as we know it today.
It created globalization, it created outsourcing,
it created multinational corporation as we think of it.
It's hard to imagine a world
in which there weren't, you know, McDonald'ses and global corporations
and the sort of structure that we have now.
But the General Agreement on Tariffs and Trade is what did it.
We created this.
And it brought on this period of extraordinary disruption
and convulsion and prosperity.
From about 1948, when the GATT was first signed, till late '70s,
the global GDP grew by about seven percent per year - just explosive growth.
And for a while, people thought that wouldn't end,
that was just it - we had cracked the code.
But then it began to wane.
And in the late '70s and early '80s,
you had the great lights of a new generation of liberal economics
get together for a second time:
a new Bretton Woods.
Only this time, it was the Uruguay Round, and it lasted for eight years.
And the scenario there was a little different.
Instead of world peace and economic interdependence,
they were really motivated by this idea of global efficiency:
so basically, How do we continue to boost the global economy
as it has been boosted over the last 30 years?
What do we do?
And the scenario was different.
So, in the 1940s, there were just really, really high tariffs and quotas
and really protectionist policies at all the borders.
And so, lowering those could have this profound influence,
but by the '80s, a lot of those quotas were pretty low,
a lot of those tariffs were already pretty low.
So, they began to think outside the box,
and they seized on this idea of non-tariff barriers.
And now, this leads into the modern era of trade I'm talking about now.
Now, non-tariff barriers are the idea
that it doesn't really matter
how low a tariff is around a country's border
if, once a product gets inside, it has to compete at an uneven playing field.
So, once you have, you know, Jim Bean, for example,
it doesn't matter if Japan doesn't have a tariff on liquor
if, once it's inside Japan,
it has to compete on the same shelf next to a Japanese liquor
that's subsidized by the Japanese government.
So, the idea now was, you know, we just strip away all that other stuff
and make the world's economy as efficient as possible.
And that is the philosophy that governed trade beginning in the 1990s.
In 1995, we got rid of the GATT,
and we replaced it with something you've probably heard of:
the World Trade Organization.
And around that time, before and after,
we had these extraordinarily, enormously powerful trade agreements -
the NAFTA, the CAFTA,
and literally thousands of bilateral investment treaties -
all of which were governed by the same philosophy:
non-tarrif barriers.
How do you get nation states to sign on to this idea
that their domestic industrial policies,
their domestic laws, their domestic regulations
needed to align with this global sense of efficiency?
It's the whole idea.
And just take a moment, and appreciate that
because it's totally different
than anything that the granddaddies of trade would have considered trade.
In the late 19th century, you know,
David Ricardo and Adam Smith
and all these people you learn about in textbooks,
when they were talking about trade,
they were not talking about someone's domestic policy on environmental law.
They were not talking about, you know,
how long a pharmaceutical company's data exclusivity should last.
Should it last for 12 years or 7 years or 5 years
and under what circumstances?
All of a sudden, that became what we were talking about
when we talked about trade.
And that changed everything.
So, to give you two examples,
one of the biggest discussions about trade that we've been having since the late '90s
involves - or fights, really - involves the Europeans and the Americans.
And the Americans want to export their genetically modified beef to Europe,
and the Europeans, for a variety of cultural and social mores,
don't want that, don't want GMO beef.
And so, you have this fight
because the Europeans say that they're allowed for local rule
and national sovereignty
and democratic nations reflecting the preferences of their constituencies,
they should be allowed to have those rules.
And the USA, that's backed by the WTO, says, "No,
your domestic policies are not aligning with the sense of global efficiency."
And that is actually a much more interesting discussion to be having
than, Is trade good or is trade bad?
Suddenly, we're discussing national sovereignty,
we're discussing local rule,
we're discussing, What do we mean by environmental regulations,
and are we okay with them being trumped?
Under what circumstances?
So, here's a second example, and this happened this year in the US.
In the US, it used to be or it is
that if you wanted to put your tuna on the shelf
and say "dolphin-free tuna" on it,
you had to use methods that actually excluded dolphins.
And the Mexican government got wind of that and said,
"You know, that's not fair.
That discriminates against Mexican fishermen"
because Mexican fishermen fish in waters that are dolphin heavy,
and they use methods that don't exclude dolphins.
So, by having this law, we're actually discriminating against Mexican fishermen.
And the WTO agreed.
So, we have, you know, these efficiency problems.
How do we think about global efficiency?
How do we promote the free movement of as much goods and as much services
across as many borders as possible
while at the same time preserving the laws and regulations
that prize things that aren't about global efficiency,
that are maybe about, you know, racial equality
or about protecting the environment
or laws that prize public health issues,
things like that?
That gets us up to where we are today.
You may have noticed that the conversation that we're having about trade
on the national stage right now
is very confused.
(Laughter)
We've got both of our presidential candidates,
who appear to be in favor of free trade
but are against the Trans-Pacific Partnership,
that's that massive trade deal
that would connect the United States and 11 other Pacific Rim countries.
And then, you have other organization like the AARP and the Sierra Club
and Doctors Without Borders
that are opposed to elements of it.
And people are telling us, "Oh, you're either for free trade,
or you're against it,
or you're for globalization, or you're against it.
What kind of the world do you want to live in?"
Well, we're not talking about trade.
We're talking about rules.
We're talking about global rules, global standards,
and what kind of world we want that to be.
And as soon as you sort of change your mind
and you realize that that's what we're talking about,
it all starts to make a lot more sense.
So, I want to leave you guys with that idea.
We created the world that we live in now.
Our forefathers got together at Bretton Woods,
and they created this global economy that we have now,
and we remade it in the late '80s and the '90s
with the World Trade Organization.
The rules that we pass and that we embrace are the rules of the game that we live in.
So, let's think about that, let's think about trade in that context.
Let's think about what rules we want to embrace,
what we want them to serve.
You know, do we want global efficiency to be the paradigm that we think of,
or do we want it to be something else, maybe like global prosperity?
Global prosperity for normal people:
for farmers and ranchers and, you know, everyday Americans.
It's because the rules that we pass are the rules of the game,
and when we talk about trade, we're talking about rules.
Thank you so much.
(Applause)