TPP: Is pro-free trade pro-business?
“Lower taxes, less regulation” has become the battle cry for many proponents of business, espeically those in the political world. Free trade is, of course, a natural progression for those seeking to promote business interests. Even as the world flirts with a second Cold War or a third World War, the campaign for expanded free trade marches on, but free trade agreements like the Trans-Pacific Partnership (TPP) are not necessarily pro-business.
Increased trade can open new opportunities for business to sell their goods and services. In turn, it can offers consumers greater access to those wares, including less expensive versions of domestically produced goods. For investors, it provides cheaper access to global investment opportunities. Above all, it provides businesses the opportunity to operate in whatever environment is most advantageous to their needs.
On the flip side, the benefits of free trade are derived from circumventing costs associated with taxes, regulation, and payroll. In other words, free trade helps neutralize the economic sovereignty (power) of nations and rewards economies offering the lowest cost environment instead of a sustainable business environment. From the perspective of those who believe government does nothing more than spend money and market forces will provide for the needs of displaced workers when the economy reaches a point of equilibrium, such issues do not matter.
Unfortunately, business-minded individuals tend to overlook geopolitical realities when they instinctively embrace public policies like free trade. Situations, such as the Ukraine Crisis, the South China Sea Crisis, and the expansion of the Islamic State remind the world that there are hazards to relying on free trade for economic growth. The unpredictable and destructive nature of geopolitical events means diplomatic relationships can quickly disintegrate and plunge countries that are over dependent on trade into economic chaos.
Certainly, there will be those who argue businesses and countries have a greater choice under free trade, but the economy is ruled by market forces driven by costs. Free trade spreads, because the immediate economic benefits are often more obvious than the broader, long-term costs. Meanwhile, government officials fear their countries will become “uncompetitive,” if they do not engage in free trade; therefore, free trade creates a situation where peer pressure rules the economic policies of countries and businesses alike.
Because the US, as the world’s largest economy, engages in free trade, it is far more difficult for poorer countries to say no to lower taxes and less regulation. Adding the most populous region, i.e. Asia, into the mix will only make it that much more difficult to reduce the negative impact of free trade. Where the US and other countries should recalibrate their trade agreements to better reflect the interests of their countries on a constant basis, free trade makes it very hard to impose any boundaries on industries.
For small businesses serving their own countries, free trade does not necessarily offer any real benefits. If a small business is able to export goods and services, free trade makes it cheaper to access new customers, but it does not mean they will have more customers or sales. Free trade puts downward pressure on taxes and wages, which can help cut the costs of small businesses. Unfortunately, less tax revenue and lower wages strain the communities these business depend on to survive by forcing local governments to raise taxes on a narrowing tax base, which includes increased taxes on local businesses, and decreased consumer spending.
That said, the greatest benefit of free trade goes to bigger businesses that can cater to a much larger and more diverse customer base. For corporations, which are built and sustained over decades, degenerative competition creates a real hazard. Moving beyond the shortsighted mentally of “regulation is bad,” regulation creates standards by encouraging businesses to avoid displacing costs onto consumers in terms of inferior products, workers in terms of workplace accidents, and communities in terms of environmental and social issues.
When established companies with reputable products and services have to complete against a constant stream of cheaper alternatives, which thrive because they are willing to displace harmful costs onto others, market forces dictate sustainable businesses must compete by lowering their costs and standards. Recognizing the abysmal record of developing countries when it comes to intellectual property and worker rights, the kind of competition free trade promotes is not pro-business or pro-community.
Ultimately, an economy must provide for the needs of the population it serves or it cannot be sustained. The goal of capitalism is, after all, to more efficiently distribute the resources of a nation through better management and innovation. When free trade does not provide for the needs of a People, when free trade bankrupts the small businesses of communities, and when free trade undermines the long-term competiveness of corporations, it is not pro-business. Instead of free trade, the world should focus on improving the quality of trade that already exists with countries like India, which is pro-business.
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