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Trade Pacts: A Way out of Recession?

If you've been scanning the headlines the last few months, you may have seen a bunch of stories about international trade pacts being signed or discussed the world over.

A few days ago, the European Union and Singapore closed negotiations on a pact that could be finalized this spring. As the Wall Street Journal reports (subscription required), Singapore agreed to address “technical barriers” in the automotive, electronics, and renewable-energy equipment sectors, making it easier for the 27-nation EU to sell goods there. The EU would lift tariffs on all imports from Singapore over five years. According to Reuters, the EU is Singapore's biggest trade partner other than Malaysia.

In November, the EU announced that it will start free trade agreement (FTA) negotiations with Japan. According to EU forecasts, that FTA could deliver 0.8 percent GDP growth for the EU and more than 400,000 jobs.

The EU's first trade deal with an Asian country was a pact with South Korea in July 2011. The European Commission calls it the “first completed agreement in a new generation of Free Trade Agreements launched by the EU in 2007.”

There are rumblings, too, that the Obama administration will push for more agreements during the president's second term. The Christian Science Monitor reported last week that President Obama has “begun talks with 10 other nations from Chile to Singapore to open up more trade through a grouping called the Trans-Pacific Partnership.”

And the idea of a US-EU FTA could be reignited. Such a pact has been discussed for decades, and the entities already enjoy many trade-partnership benefits. However, “the Great Recession and Europe's debt woes have pushed both sides to now see an expansion of exports as a way around the political problems of budget austerity and more stimulus,” the Christian Science Monitor said.

The $15 trillion US economy and the $17 trillion European economy are tightly linked; the US and Europe trade more than $42 billion a day. But UPI reports, “An EU commission assessment reckons that such a deal could boost trans-Atlantic trade 50 percent, add an immediate half a percent to annual gross domestic product growth and create more than 100,000 jobs for each of them.”

I'm sure there are several other FTAs worth mentioning, but you get the idea. This trend is curious on a couple of fronts. First, we all know we have a global economy. Every country's supply and demand, imports and exports, and overall trade health depend directly on other countries' supply and demand, imports and exports, and overall trade health. Shouldn't FTAs already be the norm? Or, if we took the argument further, if trade is so obviously interdependent, shouldn't some of the terms included in these deals already be assumed from the time cargo leaves one place and arrives somewhere else?

And it seems countries negotiate more FTAs during bearish economic times. I haven't looked closely, but I don't remember hearing a lot about developed countries discussing pacts with one another in 2005 or 2006, when everyone was making money. It seems like trade agreements, both in the US and in Europe, were being shored up in those years with developing countries such as Peru, Columbia, and Malawi, which seems to ensure a clearer path for US and EU exports.

I suppose, on a bigger scale, my concerns are neither here nor there as far as electronics companies go. Whether tariffs are low or nonexistent, more open trade exchanges and improved customs practices should give the high-tech industry a boost. At least, that's what should happen in theory. I guess we'll see if these talks turn into something real and positive for the industry.

1 comment on “Trade Pacts: A Way out of Recession?

  1. FLYINGSCOT
    December 20, 2012

    I suppose one could look at the history of FTA in the Americas to get a clue on how they might fare in other necks of the wood.

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