Thread by @DavidHenigUK

The promised trade thread. Someone contacted me to ask why countries conclude Free Trade Agreements if the economic benefits aren't that significant. Good question, so here's 10 reasons, counting down to the most important (on my assessment), with a few examples...

10. You have particular market access issues to solve, like one of your products being prohibited or discriminated against in the other market.

Least important as these are common, and other ways to solve them exist

9. You want to bring the other country into the global trade system. Also gain first mover advantage. Was once the case with China deals, could now be the case with EU-Mercosur.

Disadvantage, first mover v assessing what others managed to agree

8. You want to deepen relations with neighbours. Obvious place to look for trade deals is with those closest, as we see from the number of regional blocs in existence. This was for many years the UK's fundamental trade policy

7. A small percentage of a big number is still a big number. That 0.1% GDP growth may not seem much from a US FTA, but total UK GDP is $2.9 trillion or so, so the growth is still $2 billion. Where else are you getting such growth?

6. You want to symbolise being an open economy, and signing lots of Free Trade Agreements is a good way to do so. See Chile and Peru as good examples. The direct benefits may be limited, but hello inward investors, look at us as a possible base for operations...

5. You want to expand your regulatory reach. See EU trade policy, possibly US as well. Our rules, our benefits. Or this morning's story that Malaysia would like a UK trade deal if we go against the EU policy on palm oil. bloomberg.com/opinion/articl…

4. Your neighbour / competitor has just done an FTA and some of your exporters are now suffering. Practical example of Japan reducing agricultural tariffs to CPTPP partners, and US feeling left out having withdrawn from that trade agreement

Into top 3, and the first featuring the UK. You want as much as possible to guarantee trading conditions beyond the WTO, or in case that ceases to exist. A big reason for both the Trans Pacific Partnership, UK interest in being part of it, and Japan's support for the UK in this.

2. The one that has nothing to do with trade. A leader just needs a deal, or wants to show friendship with another country. The economic benefits of a New Zealand or Australia FTA are likely to be minimal, but the symbolism is important

So many reasons for a Free Trade Agreement, and I've probably forgotten some and will be rudely reminded. Very few of which Governments want to admit. And they certainly don't want to admit to the biggest reason of them all, one of the reasons trade policy got weird...

1. The top reason for a Government doing a trade deal is to provide the excuse for domestic market reform and / or cheaper imports. Simply it is easier to overcome domestic opposition to e.g. a domestic services monopoly, by putting into the context of economic gain

We see this top reason in the UK. What's the reason for a US trade deal first? Because that's what distances us from the EU regulatory model, but you can disguise this by talking about economic benefits. It's an old trade trick...

Incidentally one of the reasons for EU and US failure to overcome obvious domestic protectionism (agriculture, the ridiculous US Jones Act prohibiting foreign companies providing maritime services, Buy America) is that they don't need to change policy to get a trade deal

So to conclude - the commonly understood case for Free Trade Agreements - economic benefit - is only one not primarily important reason. This is near universal, and is also one of the factors that has led to trade agreements being controversial... /end