Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



Does Fast-Track lead to Better Deals, or just More Bad Deals?
Jesse Richman, 2/27/2015

One oft repeated argument for granting the President fast-track authority to propose a take-it-or-leave-it offer to Congress on 'trade' deals is that if the president has such authority he or she will be able to negotiate a better deal for the US. 

This is a curious argument, since a little bit of elementary logic suggests that in fact the opposite is sometimes true.  A common negotiating strategy is to play "good cop - bad cop" -- one of the negotiators is constrained by an ally in a way that prevents major concessions, but can leverage the fact that he or she is constrained to bond with the opponent in the negotiations -- "I wish I could give you a better deal, but the "bad cop" won't let me." More generally, a fundamental principle of bargaining models is that having less room to make concessions can lead you to be better off in a negotiation because if a deal is to be struck the other side will have to make most of the concessions. 

Indeed, although Fast-Track may lead to more deals taking place, the gain in the number of deals is likely to be at least partially offset by the tendency of those deals to be worse deals for the United States relative to the deals that would have been struck in the absence of Fast-Track authority. 

Here I develop an example of a simple bargaining situation in which not granting fast track authority makes both Congress and the President better off.  I use the political science equivalent of the supply and demand graph -- the one-dimensional spatial model.

Basic assumptions of the model:

The President (P), Congress (C), and a foreign government (F) are negotiating a new trade deal.  All parties must agree to the deal in order for the deal to be passed.  The current status quo of trade-relevant policies in the countries is q.

Under Fast-Track authority P and F negotiate the deal, which is then presented to C which either approves or rejects.

Absent Fast-Track authority, P and F negotiate the deal, which is then presented to C which either approves, rejects, or revises the deal by paying a cost r and attempting to shift the deal to C. The cost r of revising the deal reflects the risk that the deal will be rejected by F after revision leading to a loss of the possible gains associated with the deal.

I will focus on the following two configuration of preferences:

_F                       P            C__                             ____q  

Here F's preferred deal is on the left, the preferred deal of P is next, and the preferred deal of C is in the center of some policy dimension.  Because Q is on the far right of the policy dimension, there are deals that make all three better off.  I assume that r is less than the distance between Congress and the President: r< |C-P|.

And

q                                       _F                       P            C_

Here all of the preferences are aligned in the same way except that the status quo is at the far left instead of the far right.

Fast-Track to a Bad Deal?

Given the preferences in the example, under Fast-Track a deal will be reached somewhere between P and F, which the exact deal a function of the usual mix of factors that influence negotiating performance such as time discounting etc.  

I have labeled one such deal on the line below: a point "f" to indicate Fast Track. 

_F            f          P            C__                             ____q  

Since C is closer to f than to q, C prefers f andwill ratify the deal.

A very similar pattern should obtain under the second configuration of preferences.  Again a bargain is reached between F and P. 

q                                       _F         f             P            C_

Slow-Track to a Better Deal

Absent Fast-Track, no deal can be reached that is a distance greater than r away from C. Hence, if r= |C-P|/2, we have an expected deal midway between P and C. I have labeled this point n.

_F                      P     n      C__                             ____q  

This is a better deal for both P and C, so both benefit as a result of Congress not granting Fast Track authority.  Both are better off because the need to prevent Congress from revising gives the President more leverage in negotiations here, leading to better outcomes. 

A similar outcome occurs with the second preference configuration.  Once again Congress is able to constrain the deal in a way that makes both U.S. players better off.

q                                     _F                      P     n      C_

 

Counter Examples

There are arguably counter examples in which the absence of Fast Track prevents a deal.  Here is one:

q    _F     f                 P     n      C_


Here there are deals that would make all three better off: any deal between q and f.  But if Congress insists on revision to C in the face of such a deal, no deal at all can be struck.  I would argue, however, that this is not as strong a counter example as it appears.  If Congress is rational, it should recognize that any effort at revision beyond f will inevitably doom the negotiations.  Hence, it should not reject such a deal.

Conclusion


The toy examples given here illustrate a very important point.  Fast Track can quite readily set up Congress (and even the President as well) to receive a worse deal.  Preventing Congress from having its say on the content of the deal weakens the U.S. negotiating position, which can undermine our ability to extract concessions from negotiating partners. 

Your Name:

Post a Comment:




  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015

    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade

    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]