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Free Trade and Its Foes

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SeongJoon Cho/Bloomberg
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In the black-and-white world of economics textbooks, free trade is good for everyone. Each country figures out what it does best, then exchanges the wine, cloth or software it makes with other nations, creating wealth on both sides. Where jobs are lost, they’re replaced by more suitable ones. Or so the theory goes. For two centuries, the virtue of free trade went almost unchallenged by economists and politicians. Now it’s the target of a populist backlash that helped propel Donald Trump to the White House. Plans for ambitious new trade agreements have brought together an unlikely coalition of politicians, unionsreligious groups and conservationists to galvanize public opinion. They’ve refocused the debate on trade’s winners and losers, arguing that it can aggravate inequality, degrade labor and health standards and weaken democracy. What happened to faith in free trade?

Fulfilling a campaign pledge to rewrite trade policy, President Trump on May 18 notified Congress that he intends to start renegotiating the North American Free Trade Agreement, the 23-year-old deal binding the U.S., Canada and Mexico, in 90 days. Notably, Trump chose not to withdraw from Nafta completely, as he had threatened. Weeks earlier, he instructed his trade team to fix or terminate U.S. agreements — including its participation in the World Trade Organization, the body that monitors trade among 164 members — found harmful to U.S. interests. Trump also backpedaled on a promise to label China a currency manipulator and to hit it with punitive tariffs, instead agreeing to a liberalizing deal that gives certain exporters from each country better access to the other’s market. But even as opinion polls show support for free trade rebounding modestly in the U.S., Trump continues to criticize countries that have large trade surpluses with the U.S. In a May 25 closed-door meeting with European Union officials, he said: “The Germans are bad, very bad” for having a $65 billion surplus in traded goods with the U.S., German media reported. One of Trump’s first moves as president was to withdraw the U.S. from the Trans-Pacific Partnership, a sweeping 12-nation pact better known as the TPP. That doesn’t bode well for stalled free-trade talks between the U.S. and the 28 nations of the European Union, known by its clunky initialsTTIP. Fears that it would bring chlorine-washed chickens and hormone-treated meat to the EU have triggered street protests in Germany. There are also worries that intellectual-property and copyright protections in the TPP would increase drug prices and hurt innovation. Critics attacked both deals for allowing companies to use secretive panels to sidestep national courts in fighting trade disputes. Trump seems to dislike trade agreements involving multiple countries, but more two-way trade deals, including one with the U.K., may be in the offing.