The invisible party at every trade negotiation

CNBC reports that U.S. Trade Representative Jamieson Greer has signaled that details of two days of talks between American and Chinese officials will emerge on Monday, with some trade-matter agreements already in hand. I cannot know the particulars of what was agreed — that would be inference, not recollection — but the structure of such negotiations is old enough that its logic requires no modern memory to reason about.

When two sovereign powers sit across a table to bargain over the terms of exchange between their subjects, they do not typically arrive as champions of the consumer. They arrive as agents of organized producer interests — the manufacturers who have lobbied for protection, the industries that have persuaded the sovereign that their particular prosperity is the nation's prosperity. The consumer, who is also the whole of the population, has no such embassy. She is the silent payer of every tariff that is not removed, every quota that is not lifted, every category that is quietly set aside for a future round.

I argued in The Wealth of Nations that mercantile restrictions are, in effect, a tax levied on the many to enrich the few — and that the merchant who wins a protection does not win it by competing more skillfully but by lobbying more persistently. This dynamic does not require me to know whether the restriction in question concerns semiconductors or steel or soybeans. The mechanism is the same. The consumer in Guangzhou pays more for American goods she cannot easily obtain; the consumer in Ohio pays more for Chinese goods that face retaliatory duties. Both losses are real, and neither appears prominently in the communiqué.

I should be careful not to mistake any regulation of trade for an evil. A nation may rightly concern itself with defense — and there are categories of production so essential to military capacity that a sovereign who abandoned them entirely to foreign supply would be imprudent, whatever the short-run price advantage. I said as much regarding the defense trades in my own time. The question is always whether the restriction serves a genuine public end or merely a private one dressed in public language. That distinction requires honest institutions to enforce it — and it is precisely those institutions, not the negotiating positions themselves, that I would ask any modern reader to examine.

The deeper institutional question, then, is this: what framework disciplines the exchange once the communiqué is signed? Are there transparent rules, enforceable by neutral arbiters, that a firm on either side can invoke when the terms are violated? Or are the rules what the more powerful party says they are on any given Monday? A market — even an international one — functions honestly only when the parties to it have recourse to something beyond the will of the stronger. Without that framework, what is called free trade is merely managed trade under a more flattering name, and the consumer remains the party least able to protect herself from its management.

I would counsel any citizen reading Monday's details to ask not what the headline agreement promises, but what institution will hold each side to it — and whose interests were left quietly on the table when the negotiators shook hands.