Free Trade, Fair Trade, and Reality

President Trump has repeatedly stated that he wants “free trade” that is also “fair trade.”

I am all for free trade, but it's got to be fair.

Academic and political critics are quick to point out the oxymoronic nature of this statement. Free trade means no government interference with private entities making the deals they see as beneficial. “Fair” trade means that someone else’s idea of fairness is imposed on deals that the parties find satisfactory to themselves.

That is fine in the realm of theory. But reality has some different ideas. See, for instance, Apple’s decision to locate large R&D facilities in a country that has no respect for intellectual property in the wake of government decisions there limiting its business opportunities. By coincidence, within a matter of hours of that decision being made public, another example affecting Apple in Asia was announced.  Joe Rossignol weites in MacRumors:

Indonesian carrier Smartfren has announced it will begin accepting iPhone 7 pre-orders on Friday, March 24. Pricing has not been disclosed, but customers can sign up on Smartfren's website to receive more information. In-store sales at select authorized resellers will begin on Friday, March 31.

While the iPhone 7 has been available in many other countries since September, the Indonesian government recently enacted a policy that requires 4G-capable smartphones to have at least 30 percent "local content," which can be hardware, software, or in this case, a commitment to invest in the country.

Apple satisfied the requirements of that policy when it committed around $44 milliontowards research and development in Indonesia over three years, which will include building an iOS App Development Center in the country. Apple received a "local content certification," allowing it to sell iPhones throughout Indonesia.

There is nothing unusual about this sort of give and take.  Governments do it all the time, forcing companies to offer concessions for the privilege of dong business unhindered by limitations and harassment. Sometimes openly, but often covertly, as when France famoulsy insisted that all VCR imports from Japan had to be processed at a small govenrment office in the provincial city of Poitiers, thereby limiting imports to a trickle while it tried to foster a domestic industry. 

  President Trump is the first postwar president to acknowledge this reality, and to promise to play the game as well as it is being played against the US.  When he blasts the negotiators who have inked tarde deals, he is really criticizing the policy of the US playing by the rules while others play hardball, with pressures both formal and informal being used to extort value from American companies and ultimately from the American economy. Those R&D jobs overseas won’t generate nearly as many American jobs as they would if located in a US facility.

President Trump is really writing the obituary for the era in which the US kept everyone else happy by conceding to others the ability to play economic blackmail while self-righteously refusing to play that game to protect our own interests. He is a realist, and it is refreshing.