Mendoza School of Business

Are Free-Trade Agreements Actually Protectionist?

Published: June 17, 2013 / Author: Evan Soltas

The following is an excerpt from an article in Bloomberg that mentions research conducted by Finance Professor Jeff Bergstrand on trade deals. To read the entire article visit: Are Free-Trade Agreements Actually Protectionist?

Are free-trade agreements protectionist? It sounds like a silly question, but it’s always worth asking of regional (as opposed to global) trade pacts — like the ones the U.S. is seriously considering with the European Union and the Pacific Rim.

Economists are often mocked for free-trade worship, but they’re skeptical when appropriate. Jacob Viner, a University of Chicago economist, argued in 1950 that free-trade agreements don’t necessarily promote free trade.

Trade deals have two effects, he said: They create trade by lowering the cost of international exchange, but they also divert it by the selective reduction of barriers. Whether the first or the second effect predominates determines whether the deal is good or bad.

Economists Scott Baier and Jeffrey Bergstrand have also found in a series of research papers that agreements similar to the prospective TPP and U.S.-EU pacts create far more trade than they divert. “The deeper the trade deals are in terms of the number of regulations they harmonize, and the greater in breadth measured by the number of industries they cover and countries they include, the bigger the trade-creation effects,” Baier said in an interview.


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