1. The crumbling consensus on “free trade” is resulting in trade agreements geared towards specific commercial and economic outcomes.

For most of the post-WWII era, trade negotiations (multilateral, bilateral, or regional) have been conducted with a simple underlying objective: to reduce or eliminate barriers and restrictions which impede the flow of trade and investment across borders. This objective was based on the widely held conventional wisdom that “free” or “freer” trade would be beneficial for countries, both individually and collectively.

Today, the traditional consensus in favor of free trade is breaking down, especially in the US. The reasons for this are manifold. The term “free trade” itself is loaded. There’s no common understanding of exactly what it means. Perhaps more importantly, there is now a recognition that “free trade” as expounded in the pages of academic papers and textbooks has never and will never exist. Indeed, the benefits of free trade described by classical economists such as David Ricardo were based on a number of conditions which bear no resemblance to the real world (fixed exchange rates, immobile capital, full employment, all countries at the same level of development, trade in static equilibrium, etc.)

There is also a growing recognition that the multilateral trade system that was established explicitly to pursue the goal of “free trade” can in practice be exploited and manipulated to tilt the playing field in favor of domestic interests at the expense of trade partners. A host of economic maladies in the US ranging from a hollowed-out manufacturing base to stagnant middle-class real wages are being correctly or incorrectly attributed to the perceived “tilted” playing field in trade.

As a consequence, there has been an increased belief in the US that the pursuit of traditional “free trade” is not an effective way to promote national economic interests. Continuing to play the game in the old way is seen as a fool’s errand.

This has led to a critical shift in the way the US approaches trade negotiations. It is no longer about the attainment of longstanding notions of “free trade”. It is instead about securing specific commercial and economic outcomes.

For instance, the automotive rule of origin in the renegotiated NAFTA agreement is transparently designed to shift more production to the US, and to discourage the use of inputs from Asia. The renegotiated (and significantly watered down) Investor-State Dispute Settlement provisions are designed to make US companies reconsider the wisdom of relocating facilities outside of the US. Steel and aluminum export caps were negotiated by the US with a number of trade partners in exchange for exemptions from US punitive tariffs placed on these products globally. And in terms of the Phase One trade agreement with China, the US has reportedly secured specific dollar value commitments from China for the purchase of US products.

While there are ample and legitimate reasons to be concerned about the new approach taken by the US, it is equally important to reflect on the shortcomings inherent in the current system which paved the way for this shift. Voluntary and cooperative institutions (such as the multilateral trade system) are only sustainable if they maintain the confidence of the participants. Once confidence breaks down, the foundations start to teeter – as we are witnessing today. The current US approach – whether one agrees or disagrees with it – is simply a reflection of faltering confidence in the ability of the current trade system to sufficiently deliver mutually acceptable and mutually beneficial outcomes.

As 2020 unfolds, keep your eye on whether confidence in the trade system can be restored, or if more countries will begin to follow the US lead.

2. Sustainability will continue to grow in importance, but trade agreements will struggle to meaningfully address sustainability issues.

There is – fortunately – an increasing recognition that although trade is an essential ingredient in economic development, it cannot be sustainably pursued unless it generates balanced economic growth and includes an equivalent commitment to strengthening social capital and environmental stewardship.

The desire to ensure that trade is conducted sustainably has led to more expansive and ambitious labor and environmental provisions in free trade agreements. While the sentiment behind these provisions is laudable, a word of caution is in order. Given the complex range of entirely non-trade related factors that underpin labor and environmental realties in most countries, there are limits to what we can expect trade agreements to accomplish in these spheres.

We know, for example, that bad actors have a variety of hard-to-detect and nefarious tactics at their disposal to rig the outcome of ostensibly “free and open” labor union elections. We should have no illusions that a trade agreement would ever be capable of fully preventing such abuses.

Including impractical and unenforceable labor and environmental provisions in trade agreements might be symbolically satisfying, but over the longer term they will only breed cynicism about trade agreements as it becomes evident that lofty objectives cannot always be fully enforced or achieved.