Fiscal Policy And Trade Agreements

In addition, free trade is now an integral part of the financial and investment systems. U.S. investors now have access to most foreign financial markets and a wider range of securities, currencies and other financial products. Multilateral, regional and bilateral negotiations have been successful in removing traditional post-war trade barriers (Bown and Crowley 2016). With this success, the trading community has shifted its attention to various non-tariff barriers that global markets are still far from being integrated. Among the most examined non-tariff barriers are trade barriers resulting from differences in national legislation or what Sykes (1999a, 1999b) described as “regulatory heterogeneity”. We envision a “new trade agreement” that will achieve global efficiency, defining not only the cooperative business tax, which was at the heart of an “old trade agreement,” but also defining how governments should best define their standards. As usual, net trade taxes should be set at zero and consumer subsidies are necessary to offset market power, as is usually the case. However, when consumer subsidies are called into question (similar subsidies for local and imported goods), there is no need to set the amount of these subsidies in a trade agreement. As part of national treatment, governments have unilaterally set the subsidies necessary to balance market power2. In addition, a new finalized trade agreement could detail the characteristics of products from all sources in all markets. But without external consumer effects, the products that companies design and sell to maximize profits in a world without regulation have exactly the characteristics that are effective globally. Therefore, a new trade agreement does not need to formalize detailed product standards rules.

It is enough for governments to refrain from regulating. This is obvious to anyone who has spent a lot of time on drug trade data, for example.