The Bear’s Lair: Treaties do more damage than tariffs

Conventional wisdom holds that treaties represent countries getting together peacefully to advance humanity’s goals, while tariffs represent dog-eats-dog negative-sum competition that can provoke wars. Yet treaties, being complex and negotiated in secret, are mostly the work of rent-seeking bureaucrats, whereas the competition of tariffs provides international relations with valuable grit, preventing countries from conspiring together against ordinary people. As new treaties get sillier, it becomes clearer: they do far more damage, economic and to liberty, than do tariffs.

To take a historical example first, the mechanism by which treaties were arranged changed fundamentally between the 1815 Treaty of Vienna and the 1919 Treaty of Versailles. In the former case, two monarchs (Alexander I of Russia and Frederick William III of Prussia) and three ministers (Metternich of Austria, Talleyrand of France and Castlereagh of Britain) were able to sort out their differences man-to-man, with none of them having a separate bureaucracy, expert advisors or democratic electorates to which they were responsible.

The result was a settlement that had none of the defects of modern treaties, being negotiated between a few rational men with full responsibility for the welfare of their countries. When the process got jammed, with Alexander I and Frederick William III being difficult about the fates of Poland and Saxony, the three true experts, Metternich, Castlereagh and Talleyrand, each skilled almost without parallel in the history of diplomacy, were able to untangle the knots between them and present the solution as a fait accompli. The result was a settlement that brought a century of peace, which need not have ended there had there been rational statesmanship in 1904-14.

Versailles on the other hand had the defects of modern treaty-making. Each of the three principals, Woodrow Wilson, Lloyd George and Clemenceau, were heavily influenced both by irrational ideologies and domestic political commitments. Clemenceau’s case was easiest to understand and most forgivable: he shared the French desire for revenge after the Franco-Prussian War, exacerbated by the immense destruction of World War I. No mild and well-considered Treaty of Vienna-type settlement would have been acceptable to him.

Lloyd George had an irrational hatred of the hereditary aristocracy – so much for preserving the benign and economically fruitful regime of Austria-Hungary. He had also just won an election on the slogans of “Hang the Kaiser” and “Make Germany Pay,” so was not about to design a non-retributive peace that would allow Europe to bury old hostilities.

As for Wilson, he had a naïve faith in the possibility of a world organization that would preserve peace, an undying faith in the ability of intellectually superior bureaucrats to reorganize people’s lives for their own good, and an inner conviction of his own righteousness that allowed him to apply the principle of “self-determination” in central Europe without bothering to hold any referenda.

The true interests of the peoples of Europe and the United States: returning to peace and prosperity and above all avoiding a further outbreak of war, were completely ignored by the designers of the Versailles Treaty. Sadly, that has become only too universal in modern treaties, which have followed the Versailles pattern of undying faith in self-interested bureaucrats rather than the Vienna pattern of highly able disinterested people skillfully working to a solution. Bilateral treaties occasionally achieve something useful; multi-national treaties are almost always damaging.

A partial review of treaties signed within the last 30 years illustrates this perfectly:

1989 Montreal Protocol: This has been the most effective of the ten treaties discussed here; it has reduced the amount of chloro-flourocarbons in the atmosphere by about 10% over the 30 years since its ratification. Its scientific desirability also appears to be reasonably solid. However, black market supplies of CFC-11 are common and the treaty has been systematically flouted by China, which gains an economic advantage from doing so.

1992 Maastricht Treaty: This treaty was stitched up by EU bureaucrats, and converted the European single market, for which British voters had voted in 1975, into the beginnings of a European Union, for which no democratic mandate has ever been given. It was not put to a referendum in Britain, and Denmark, which rejected it in a referendum, was made to vote again. The entire process was disgracefully undemocratic. By taking away without a vote the option of a simple economic association, it led to the 2016 Brexit vote to leave the EU.

1994 Marrakesh Agreement: This marked the high point of world free trade, ratifying the Uruguay Round of trade talks and instituting the World Trade Organization, an unaccountable supranational body. It has never commanded anything close to majority support in its member nations, which through the improved communications of the Internet have found their manufacturing industries sucked into the Third World and their living standards decimated. Not surprisingly, it marked the absolute high point of the global free trade movement, which now appears to be in severe retreat. Presumably the overstuffed globalist WTO bureaucracy will remain even after all purpose for its existence has vanished.

1994 NAFTA: Provided the “giant sucking sound” of jobs to Mexico forecast by Ross Perot in 1992; it has done very little good for the United States and appears to have damaged substantially Mexico’s economy and political system. Linking the generously paid U.S./Canadian economy with the impoverished Mexican one was always likely to be damaging, though to be fair the Marrakesh Agreement has probably damaged U.S. living standards more than this one.

1995 Dayton Agreement: Ratified peace in former Yugoslavia, creating a successor state, Bosnia, with three sub-states, that has never worked properly even though it had previously been quite rich – the presence of an army of incompetent meddling aid workers in the country has probably been primarily responsible for this. Bosnian savings, stolen by the Serbs in 1991, were never restored, so Bosnia has underperformed by a mile all the other republics of former Yugoslavia. Led to another war and failed state (Kosovo) within four years.

1998 Good Friday Agreement. Provided an unwieldy bipartite model for government of Northern Ireland that has been suspended for the last four years, and a border process that if observed will trap Northern Ireland within the EU. To be fair, the Northern Ireland problem may be insoluble.

1998 Kyoto Protocol: The first attempt to put global mandatory limits on carbon emissions; it was expensive but largely ineffective and was unanimously rejected by the U.S. Senate. Several Western states achieved their targets by their natural switch from coal-fired to gas-fired power stations but China and India, excluded from the Protocol increased emissions at an exponential pace.

1998 Rome Statute of the International Criminal Court: Provided a process by which leaders unacceptable to the liberal elite could be hunted down worldwide and put on trial for a decade or more. As a result, it is now impossible to get rid of loathsome regimes such as that of Venezuela’s Nicolas Maduro, since their leaders’ previous option of retirement with their ill-gotten gains is no longer secure.

2007 Treaty of Lisbon: Put into statute law the EU Constitution, which had been rejected by voters in several referenda. Even more than Maastricht, it was the negation of democracy.

2015 Paris Agreement: Second attempt to impose the climate change dogma globally; it set only voluntary targets and was designed not to need ratification by the U.S. Senate. President Trump announced his intention to withdraw from the Treaty in 2017. Like the Kyoto Protocol, it has imposed enormous costs on the global economy, particularly in European countries which take it seriously.

Each of these treaties, with the possible exception of the Montreal Protocol, have done far more harm than good, particularly to the rights and living standards of ordinary people not included in their decision making. The only gainers have been overstuffed bureaucrats employed by international agencies, such as the WTO, the UN bureaucracy on climate change and the various aid bureaucracies. Naturally, these well-connected bureaucracies form an immensely powerful lobby for the extension of such treaties, producing endless spurious, academically disgraceful economic and “scientific” studies purporting to prove they are not harmful.

On the other hand, by the Whiggish theories of international trade, tariffs are economically damaging. They impede economic activity and force the production of goods and services in economically suboptimal ways. However, that is true of all taxation; income taxes and excises are equally distorting of economic activity. Government must be paid for somehow; there is no reason why low tariffs, that do not wholly exclude imports, are any more damaging than other forms of taxation. Certainly, tariffs are less damaging than regulations, whose cost is often infinite by blocking an economic activity altogether.

In practice, we can currently see that President Trump’s turn to protectionism has not yet significantly raised prices and has produced modest amounts of much needed revenue for the U.S. Treasury. Protectionism has also inserted useful grit in the international Treaty production process, providing areas of new inter-state grievance that make it more difficult to set up new international bureaucracies. Since such Treaties are designed by bureaucrats in secret and are often highly damaging to the interests of ordinary people, the global movement to protectionism, by hindering their production, appears very salutary.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)