The Economic Impact Of The U.S. Moving Away From Big Multi-Lateral Trade Agreements

Jun 3, 2019
Originally published on June 3, 2019 3:43 pm
Copyright 2019 NPR. To see more, visit https://www.npr.org.

AUDIE CORNISH, HOST:

One item on the docket for Trump's visit this week - negotiating a potential trade deal between the U.S. and the U.K. to go into effect after the U.K.'s expected departure from the European Union. The negotiations come as trade tensions are rising around the world. The U.S. and China have imposed steep tariffs on each other's goods. Last week, Trump announced new tariffs that would apply across the board to imports from Mexico.

To help us sort out the prospects of a bilateral trade deal between the U.S. and the U.K. and to look at the historical context, we're joined by Professor Dennis Novy. He's an economist at the University of Warwick. Welcome to the program.

DENNIS NOVY: Thank you.

CORNISH: Before we dig into the history, I want to find out from you if you think there's a chance that the U.S. and the U.K. will come to an agreement on a bilateral trade deal.

NOVY: That chance, in my view, is close to zero. And the reasons are quite simple. Well, first of all, any such trade agreement would take many, many years to negotiate - probably at least four, five years. And who knows what happens by the end of that?

Second reason is that there are some fundamental difficulties. For example, the U.S. wants to open up the U.K. health care market, the National Health Service, which is a very delicate issue politically. They also want to open up the U.K. market for agricultural exports. That includes lots of regulation issue, food safety. Chlorinated chicken is the big issue of contention.

These are very difficult issues. They've proven very difficult before, so I don't expect any swift resolution there because these issues go back a long time.

CORNISH: So you recently published a paper looking at trade disputes in the 1930s, specifically that countries began striking bilateral trading agreements like the ones being negotiated now. Why did you look back at that period, and what did you find?

NOVY: We looked back at that period because people have been discussing this notion of trade wars recently. So it's quite natural to look back in history, and asking, well, what happened in previous times when we had trade wars? And the 1930s is probably the obvious point to look. And it's quite interesting that during that time period, what the trade wars really did is they cemented preexisting trading blocs, in particular the British Commonwealth.

CORNISH: So you had the U.K. negotiating bilateral agreements with, like, Australia and Canada and India, right? And then I read you also had Germany forming its own bloc with members, countries that it had relationships with. And the U.S. did something similar.

NOVY: That's right. The origins of the British trading bloc really go back to World War I. And a lot of the considerations are of a military nature, a geostrategic nature. They were bottlenecked in some supplies, especially for the military, and that's why the British government was thinking more about how to secure its supplies. And that happened on the German side as well. Germany was preparing for war. They were gearing up for war, so they needed to make sure they had the right supplies, especially for the military.

CORNISH: Now, you write that if similar patterns play out today, we could see a, quote, "reorientation of world trade around China- and U.S.-centric trade blocs." How likely do you think that is?

NOVY: Well, it depends on the politics. The White House wants to have a more bilateral approach where the U.S. deals with one individual country, as opposed to a group. And China now wants to create a system of its own. So that does include establishing a sphere of influence in Asia. And each of them will want to build up their own realm where they have the power in the region.

CORNISH: What do you think is at stake here? If this approach continues, what are your main concerns?

NOVY: The main concern is retaliation. We go back to a period where countries didn't coordinate. That was very much the case in the 1930s. If I slap a tariff on you, you don't like that, and you slap a tariff on me, and we're both worse off. That's why after World War II, we had multilateral negotiations to get rid of that problem.

And now we are at risk of going back to the previous period during the Great Depression when people didn't coordinate their trade policy and everyone ended up being worse off. And I think that's the concern. The international architecture, the institutional framework for doing trade policy might just break down, and it might become much more national or bilateral.

CORNISH: Professor Dennis Novy of the University of Warwick, thank you so much for speaking with us.

NOVY: My pleasure.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.