Ed Lotterman: All the politics of trade are local, too

Special to the Idaho StatesmanApril 11, 2014 

Will the European Union hold together? Should the United States join the Trans-Pacific Partnership? When considering these questions, remember that nations enter into international trade pacts for foreign policy reasons, not because their leaders took economics courses in college and learned that increased trade between nations can make things better.

In democracies, citizens support such pacts for two reasons: Either they think the pact's effects are trivial and won't hurt them, or they think a new trade pact gives hopes of avoiding vast pain - like war. This second case often depends on the involved nations' collective memories of trauma. When that memory fades, support for the economic pact may melt away.

All this came to mind a few weeks ago as I returned to my hotel in Madrid and saw a more-than-milelong line of Spaniards shuffling slowly past the funeral bier of Adolfo Suarez, Spain's first democratically elected prime minister - and a key leader in Spain's return to modern democracy - after the regime of Francisco Franco.

While Spain did not complete its entry into the European Union until a few years after Suarez's time as prime minister, his policies all worked toward making Spain "a country desirous of living in peace and liberty, of opening frontiers and of being Europe," as Spain's leading weekly magazine put it. The real sorrow at his passing demonstrates how important that objective, "of being Europe," was to Spaniards. However, there were few people younger than mid-30s in the procession.

At first, the EU itself, beginning as a post-World War II "common market," ostensibly was to improve economic arrangements for coal and steel. But the political objective always was far deeper: to bind Germany and France together so that they never again would enter fratricidal warfare. By the 1940s, it was hard to find any European family outside of Switzerland or Sweden that had not lost members in the wars of the preceding 30 years.

Spain had avoided both World Wars, but its 1936-39 civil war had killed at least 500,000 people out of a population of 25 million and ushered in 36 years of authoritarian rule and semi-ostracism from democratic Europe. Joining the EU was a way to cement civilian rule, to move away from hatreds of the past and toward modern democracy and a modern economy. The primary impetus was political, not increased economic efficiency.

The same was true for many economic pacts. The 1833 customs union among sundry German states improved trade, but the impetus came from a desire to bring such states together under the leadership of Prussia, an effort finally brought to fruition by Chancellor Otto von Bismarck in 1871.

Both the Canadian-United States Trade Agreement of 1987 and the North American Free Trade Agreement that came into effect in 1994 arose from the desire of conservative governments, in Canada and Mexico respectively, to set key domestic economic policies in the stone of an international treaty so that even if these governments were to pass from power, it would be difficult for left-wing governments to change much.

All this leads back to two present-day questions:

First, can the European Union hold together after the death of the generation that suffered the wartime traumas?

Just as American World War II veterans now are dying by the thousands every day, so too are Europeans who can remember the war and its harsh aftermath. Even those who were young children in the "hunger winter" of 1945 are now approaching age 75. Only a small fraction of the Spanish population has any memory of the Civil War, and only those over 50 remember much of Franco.

Yes, that also means most Spaniards and most everyone else in the first 12 EU member countries have spent most of their lives under a unifying post-War European trade pact. But the rise across western Europe of far-right political parties that often have an anti-EU agenda demonstrates that the old consensus is eroding.

The second question arises from the pending Trans-Pacific Partnership. What are the foreign policy motives underlying this agreement? One policy answer is that we are trying to achieve greater common purpose among many smaller Pacific nations as a counterpoise to China - the way 19th-century Prussia sought to counter France and Austria-Hungary by unifying the minor German principalities.

I doubt we really are doing it to improve the U.S. economy.

Yes, it will benefit agriculture as some barriers against our ag exports are lowered in some Asian countries. But Australia and New Zealand are in the same game, and they are strong competitors.

And yes, U.S. financial firms want more freedom to romp in Asia. The Trans-Pacific Partnership also might secure changes in other nations' patent laws that will benefit U.S. high tech. But neither of these is going to do anything for average-wage or -salaried U.S. workers. When critics say the economic benefits of this agreement are skewed toward capital rather than labor, or even consumers, they are right.

That doesn't mean we should reject the pact or withdraw from the ongoing parley. There may be many good reasons to proceed. But overselling thin economic benefits was one of the errors of NAFTA and the EU monetary union. Repeating that to secure approval of an agreement that serves geopolitical rather than economic objectives would be a bad mistake.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.

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