Trade and Its Critics

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In Short

• The nature of trade deals is changing. Nowadays, trade agreements are less about lowering tariffs than about harmonising regulation.
• Many people are afraid, that the new type of regulation, established by trade deals such as TTIP, is going to affect social, labour and product standards negatively.
• It is no longer only TTIP that is being criticised, also free trade in general is viewed with an increasing degree of scepticism.
• However, if the TTIP deal is used to promote qualitatively good regulation, it might set a precedent for a generation of trade agreements that improve the conditions of trade and address many of the criticisms that have been made of past trade agreements.

Why TTIP? Or Why Not?

Trade has become political. Many people are suddenly interested in the details of a planned transatlantic trade deal (Transatlantic Trade and Investment Partnership, TTIP). In fact, they are not only interested: they hold strong opinions about it. This is novel, in the past trade deals used to be a topic for grey technocrats negotiating quaint details and producing tons of paper with very boring content.

They still produce tons of paper. But the content is no longer boring; many people take an active interest in it. The reason for this is that the nature of trade agreements has changed. During the many GATT rounds, trade agreements used to be mostly about lowering import tariffs. But now, tariffs for most goods traded among industrialised economies already are quite low. They no longer constitute the main barrier to trade. Today, businesses see different regulatory regimes as the most important barriers to trade. Technical regulations vary hugely from country to country, often not producing any relevant differences in product safety. Thus, the idea behind a new generation of trade agreements, such as CETA or TTIP, is not only to dismantle the remaining tariffs, but to achieve regulatory cooperation.

But this is precisely the reason, why these trade deals receive so much criticism. People are afraid that standards might be lowered, be it product standards or standards regarding labour conditions. Thus, trade agreements have become an important issue in the US pre-elections: Both Sanders and Trump have pronounced themselves clearly against TTIP and TPP while Clinton – initially pro-TTIP – adopted a more cautious stance.

The Bertelsmann Stiftung has commissioned YouGov to conduct surveys both in the USA and in Germany to find out what the people really think about TTIP and free trade and to understand their motivations. The full study is available here, a briefer version, focussing on the main results is presented in this blogpost.

TTIP is not popular on either sides of the Atlantic but for different reasons

As can clearly be seen in Figure 10, TTIP has more opponents than supporters, both in Germany and in the USA. The rejection of TTIP in Germany is stronger though, than in the USA. Also, there – are a large number of people who either feel not sufficiently informed, have a neutral opinion or refused to answer.

The participants were also asked what effects they expect of TTIP and whether this effect would be positive or negative. Here, it becomes obvious, that Germans and Americans object to different aspects of this proposed trade deal. In Germany, people are most worried that regulation might be watered down, especially in such areas as alimentary, environmental and labour and social standards. The latter also play a role in the USA but the bigger fears are that TTIP might have a negative effect on labour market conditions and economic growth. The detailed results are presented in Table 2. It has to be noted however, that uncertainty is much higher in the USA.

This high uncertainty on both sides of the Atlantic has something to do with the information policy about the trade negotiations. While people are generally interested in the topic, due to the secret nature of the talks, it is very hard to give substance to either fears or hopes that might be linked to TTIP.

Two years ago, the picture was very different. In both countries, TTIP was supported by a strong majority and the fears were much less pronounced than they were today. This change of mind is due to the lack of communication about TTIP, augmenting fears, as well as a general change about attitudes to trade.

It’s not just TTIP: free trade is less popular too

The second part of the survey was concerned with attitudes to trade in general. Here an interesting evolution becomes visible (Figures 1 and 8): Germany was hugely supportive of increased trade with other countries in the world, 88 percent welcomed it two years ago. Support in the USA at the time was a little less but still overall welcome. While in the USA support rose from 71 to 82 percent, support for increased trade in Germany collapsed to only 56 percent. Especially for a country like Germany, with exports as the backbone of its economy, such a swing in public opinion is astonishing.

The opposition to TTIP in Germany however has a different socio-economic composition than the opposition to trade. While resistance to TTIP is strong throughout the entire German society, including the well-educated, well-informed and well-off, opposition to trade is mostly found in the lower middle classes or the working poor. There is a fear that increased trade will lead to increased competition and thus to more precarious social conditions.

What future for trade?

Many economic studies investigate the effect of TTIP. While precise predictions differ depending on assumptions and the specification of the underlying model, they all expect a positive general effect. If despite this many people are turning against trade, often because of the fear that trade will not help them, the policy implication is clear: Trade-induced growth has to become more inclusive. Politics has to make sure that the positive effects of trade are felt in the entire society, including those who presently feel disadvantaged.

Paradoxically, TTIP might help to achieve this goal. According to the mandate of the EU negotiators, one of the aims of TTIP is to establish high norms not only for labour standards but also for various product regulations. Ideally, TTIP would set a precedent for future trade agreements in the world. Rather than weakening standards, strong regulations for qualitatively good labour, social and product standards would be established.  These then would be emulated by future trade agreements. Should TTIP actually establish these standards – which is not certain – and they be implemented, despite public scepticism – which might be difficult – it could mark the beginning of a new type of trade agreement. Such a new type of trade agreement would promote more inclusive trade and better labour conditions – and thus address the legitimate criticisms of many past trade deals.

Interested in more? Stay tuned for our GED TTIP infographic tomorrow and much more thrilling content on the topic over the next weeks!