The Game Theory Argument for Fast-Track Trade Authority

 

While public debate rages over the Trans-Pacific Partnership, the real issue before Congress right now is merely whether or not President Obama should be granted fast-track authority, which allows him to negotiate a treaty on behalf of the United States and then present it to the Congress for a straight up-or-down vote with no amendments allowed. As I note in my new piece for Defining Ideas at the Hoover Institution, there’s a very strong game theory rationale for giving the president this ability:

… [F]ast-track is a good solution to a complex two-stage bargaining game. At stage one, the President and his trading partners are well aware of the prospect that the Congress could turn down a trade treaty if it is perceived, no questions asked, to put the United States in a worse position. So Congress will agree to a treaty that is better than the status quo ante for the U.S., but not so one-sided that it will drive our potential trading partners away. Hence, a stage one agreement will leave everyone better off.

The great advantage of fast-track authority is that it ensures that sensible agreements at stage one will not be rejected at stage two, in the hopes that the United States (or indeed any of our trading partners) can then strategically hold out for better terms.

Such strategic behavior is indispensible for negotiating multi-lateral treaties. This is why the anti-trade forces in the United States have pulled out all the stops to derail a process that they know is likely to pave the way to agreements that leave everyone better off. Two key interest groups, labor and environmental, are staunchly opposed to such agreements.

Both the labor and environmental cases are weak. Consider these talking points from the United States Trade Representative, each of which are followed by my analysis:

  • “The TPP will enforce fundamental labor rights.” More concretely, this means that: “The TPP will level the playing field for American workers and businesses by building strong and enforceable labor standards.” Big mistake. The essence of international competition is to allow each nation to decide what level of labor protection it wants to give its own workers, knowing that those protections that raise costs without providing offsetting benefits will make local businesses less competitive in global markets. Indeed, oftentimes strong unions, a high minimum wage, or too many safety regulations in developing nations will hamper the transition from lower to higher levels of productivity. The point here is not that the United States should tell other nations not to have labor laws because they are inconsistent with the principles of laissez-faire. It is to let sovereign nations decide for themselves, so that a trade agreement does not contain its own obstacles to free trade. These international pressures will threaten unions all over. But the short term decline in union wages will be overcome when gains in productivity will lead to sustainable higher wages without any artificial government protection.

  • “The TPP will promote strong environmental protection.” Again, there are two cases. The first is that nations in the free trade bloc will pollute across international borders, which is frankly a low-risk for the signatories to the Trans-Pacific Region. But for these actions, one nation should have recourse against another whether or not there is a free trade agreement in place. So the real point here is that the United States is seeking to make other nations choose a level of internal environmental protection that suits our needs rather than theirs. In general, as prosperity increases, domestic demand for environmental regulation gets more intense. By helping trade grow, we facilitate that process. But by imposing extrinsic standards, we actually thwart competition and block that economic progress.

Read the article in full for my complete analysis of the dynamics at work with TPP.

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There are 2 comments.

  1. liberal jim Inactive

    You make the assumption that the TPP will be written in such a manner that it can be read and understood. This assumption is, on its face, ridiculous. It will be a 1000 times longer and more complex than the Constitution an will immediately be declared a “living document”. In plain english this means whatever the multinational corporations want it to mean it will mean.

    I note you use the often repeated bogus argument about the deal not being subject to amendments. Any bill supported by the Majority Leader and Speaker can and would be brought up without amendments. TPA means the deal will not be subject to filibuster in the Senate which means the establishment will have to buy fewer votes to get it through. TPA has nothing to do with amendments and everything to do with corruption.

    • #1
    • June 24, 2015, at 6:26 AM PDT
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  2. James Of England Moderator

    liberal jim:You make the assumption that the TPP will be written in such a manner that it can be read and understood. This assumption is, on its face, ridiculous. It will be a 1000 times longer and more complex than the Constitution an will immediately be declared a “living document”. In plain english this means whatever the multinational corporations want it to mean it will mean.

    I note you use the often repeated bogus argument about the deal not being subject to amendments. Any bill supported by the Majority Leader and Speaker can and would be brought up without amendments. TPA means the deal will not be subject to filibuster in the Senate which means the establishment will have to buy fewer votes to get it through. TPA has nothing to do with amendments and everything to do with corruption.

    Could you spell out your position? It sounds like you’re saying that it will reduce the need for corruption, and that’s a bad thing.

    With regard to it being understood, it seems likely to be pretty understandable to people (like me) who are familiar with trade agreements. There are literally thousands of them out there (counting non-American examples), and there’s very much a pattern to them.

    Multinationals will not be able to authoritatively interpret the document.

    • #2
    • June 24, 2015, at 5:59 PM PDT
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