Trade Negotiations Should Focus on IP Protections, Not Retaliation

The ongoing controversies regarding international trade, including the current negotiations over the North American Free Trade Agreement (NAFTA) that are coming to a head one way or the other, have increased attention on the economic importance of international trade. With the intense focus on the United States’ position in the current NAFTA talks and other negotiations, it is important to understand that economists across the political spectrum overwhelmingly favor free trade policies. At the same time, advocating for improved international protections for intellectual property rights is entirely consistent with promoting free trade.

The consensus among economists is that free trade policies are superior to tariffs and other protectionist measures in promoting economic growth and higher wages. Free trade can also lead to increasing returns to scale from larger markets, the exchange of ideas through communications and travel, and the spread of technology by exposure to new goods and production methods. Economists find that any localized economic benefits from protectionism tend to be short-lived, and in any event are greatly outweighed by the tremendous benefits spread throughout the rest of the economy.

Nonetheless, free trade policies are not nearly so popular among non-economists, on both the left and the right ends of the political spectrum. Opponents typically claim that free trade leads to fewer jobs, lower wages, and harm to domestic industries. Economists respond that if a country follows protectionist policies, it harms itself more than its trading partners, which can be seen in recent sharply negative reactions in financial markets to threats of trade wars. While it is possible that threats of retaliation can lead countries to back off from protectionist policies, such threats are risky because the country threatening retaliation will usually harm itself more than its trading partners if the threat is carried out.

Trade policies create unusual political alliances. Most Republican leaders in recent years have generally favored free trade policies. This view is shared by prominent Democrats like President Bill Clinton and many liberal economists like Paul Krugman. But President Trump campaigned against certain U.S. trade agreements, and in one of his first acts as President, he withdrew the United States from the Trans-Pacific Partnership (TPP). Fareed Zakaria, usually a harsh critic of the President from the left, recently expressed support for the current administration’s approach, stating: “Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.”

It should be noted that President Trump claims he is actually a supporter of free trade. In his 2017 State of the Union Address, President Trump said: “I believe strongly in free trade, but it also has to be fair trade.” If so, President Trump’s actions could be seen as seeking better deals from trading partners. Indeed, President Trump has indicated that he may be willing to reconsider the United States rejoining the TPP, which is a positive development.

None of this is to say that existing trade agreements, such as TPP and NAFTA, cannot be improved. This is certainly true, for example, with regard to the failure to protect intellectual property. Theft of intellectual property is rampant. A 2017 Organization for Economic Cooperation and Development report found that the global value of international and domestic trade in counterfeit and pirated goods in 2013 was between $710 billion and $917 billion, and the global loss in value of digital piracy in movies, music and software in 2015 was $213 billion.

But these opportunities to improve trade agreements do not undermine the benefits of policies favoring free trade. Strengthening measures to prevent such theft, rather than retaliation, should be the focus in negotiating multilateral or bilateral trade agreements. This certainly includes the ongoing NAFTA negotiations in which the Trump Administration thus far has not made strengthening IP protections the priority it should be. Well-defined and stronger protections in trade agreements for copyrights, patents, trademarks and trade secrets would help stimulate growth in IP-intensive industries, increase U.S. exports, and improve economic competitiveness without the economic harms that result from protectionism.

The modernization of NAFTA creates an opportunity to encourage cross-border free trade, while, at the same time, strengthening international intellectual property protections to make sure innovation and creativity are rewarded.