Why politics is driving a new wave of protectionism: Don Pittis

You've likely heard theconcern thatTwitter and Facebook have divided the world into separate camps becausemany of usunfollow the social media voices that disagree with us.

I thought of that as I flipped through my old-tech newspaper yesterday morning, reading several pieces about Canada's own domestic trade dispute, vainly looking to see if any of the commentary would take the view that the Trans Mountain pipeline expansion should not proceed.

• B.C. challenges Alberta wine ban under free trade rules

Perhaps the unanimity meant there was only a singlerational point of view.

More likely it was just anotherreminder thattrade issues, or those arguments couched as trade issues, are actually about politics and interests.

No pipeline, no wine

There is no question that thesquabble between the provinces of British Columbia and Alberta that pits thetransshipment of Alberta bitumen from the oilsandsto the coast against the importation of B.C. wine to Alberta is political.

Part of the politics is that, according to B.C., the delay in approving the pipeline expansionis not about interprovincial free trade at all.

B.C. is not refusing to buy an Alberta product, just trying to regulate that product's movement over its territory.

Alberta's refusal to accept B.C.'s wine as retaliationis a much clearer violation of the classical case wherefree trade is supposed to be to everyone's benefit.

The argument for trade traces its history back to19th centuryEnglish economistDavid Ricardo, who proposed that everyone wins when they tradethe things they make best. So convinced are economists of the truth of the principle that they consider it a law,namelythe law ofcomparativeadvantage.

Nearly a decade ago I tried to explain that lawwith a homey example of partners in a marriage where both could cook and both could walk the dog, but each could do so with different levels of skill.

The protectionist paradox

Everyone was better off if the one partner tradedsuperior dog walking exercise that left the dog truly exhausted for the other partner's superior cooking that left both well fed.

"If we were to divorce, I would have a well-walked dog, but a boring diet," I explainedin January 2009,"I would be forced to eat meals out."

"My wife would eat well, but during the weeks she had custody of the pooch, it would be restless and inclined to chew shoes."

By stopping our trade relationship, both of us wouldbe poorer.

"So widespread is the theoretical support for free and open trade, that economists face somewhat of an embarrassing paradox when they analyze the reality around them," Luca Ferriniwrote in a 2012 paper examining the causes of protectionism.

Indeed, despite the absolute certainty expressed by so many economists that trade is an absolutegood, U.S. President Donald Trump isn't alone inchoosing protectionism.

Many British politicians and according to the Brexitvote, a majority of the U.K.'s citizens preferred separating from the European Union even though many experts, including Mark Carney at the Bank of England,warned it would be costly in trade terms.

Steel for Kentucky bourbon

Similar toTrump's recent national security argument for potentiallyblocking importsof steel and aluminum, Australia has given itself the power to protect its economy from those two commodities that currently face a global glut. Although it hasn't been used since the Second World War, national security is often listedas one of the valid reasons for protectionism.

But it may be a dangerous precedent since other countries coulduse it, too. And as Canada's domestic wine and oil dispute shows, for every perceived protectionist threat, there is a counter-threat of retaliation.

"If the final decision from the U.S. hurts China's interests, we will certainly take necessary measures to protect our legitimate rights," a Chinese trade official told the Financial Times of the possible metal tariffs.

Europe is creating its own list of retaliatory trade tariffs, announcing that it may target Kentucky bourbon, Wisconsin cheese and put the squeeze on Florida orange juice, all products that would affect Republican or swing states.

The question is whetherwhat we areseeing is the beginning of a wave of protectionism that is an ominous stage in the economic cycle, or whether it is just Trump stirring the pot, encouraging others to think the same way.

According to trade critics, the perfect world where "all actors in the exchange have the same bargaining power" may not be true in the real world, says Ferrini.

Values climate

In fact, the country that in recent decades has led the push for free trade, the United States, hasbeen its biggest beneficiary.Perhaps the feeling that it is no longer in that position has been one of the factors motivating Trump's protectionist stance.

One more feature of the idealized free trade describedby classical economics is its lack of values. A good is a good, whether it is made by well-paid workers or in a sweatshop.

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One of the greatest complaints about free trade rules is that they prevent voters frommaking politically valid decisions about labour or the environment, putting all the emphasis on the dollar value of the goods and failing to recognize things such asthecarbon footprint of those goods.

Using trade as a weapon may be dangerous because it can escalate. As Ricardo insisted, that can make everyone worse off.

But the wine-for-bitumen battle is a reminder that many voters actually want a say in what constitutes a valid trade issue,and for some of them, the potential cost of environmental damagedwarfs the value of B.C. wine and the value of the Albertaoilsandscombined.

Follow Don on Twitter @don_pittis

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