John Quiggin asks the question:*

Until very recently, bilateral trade deals of any kind were seen as the antithesis of free-market reform. Reformers favored either unilateral removal of trade barriers or global deals through the World Trade Organization. Admittedly, the latter is clearly a forlorn hope, but what happened to unilateral free trade[?]

Good question. Short answer – politics happened. Unilateral free trade liberalisation is simply not popular. Chris Berg addressed this issue last year at The Drum:

The biggest benefit we get from free trade deals isn’t that other countries lower their tariff barriers. It’s that we lower our own. Lower tariffs in Australia means cheaper consumer goods and a higher standard of living. Protectionism only favours a few well-connected industries, and does so at the expense of everyone else. In other words, the chief benefit of trade deals is that they provide an excuse to liberalise domestic trade barriers at home, while placating Australian producers with promises of new markets abroad.

So in answer to John Quiggin’s question, bilateral free trade agreements become political cover for domestic trade liberalisation.

The implication of that insight is quite interesting – it doesn’t matter so much if you sign a “good” or a “bad” trade agreement if your real objective is domestic liberalisation. All that matters is that you sign a trade agreement.

Of course, this is very much a third best solution to unilateral trade reform or multilateral trade reform. Right now, however, it is the only game in town. Chris Berg goes on to describe some of the perverse incentives associated with bilateral trade agreements, but overall, I suspect, the benefits of additional trade are so high that the perverse incentives are tolerable.

* As always this is not an invitation to launch into Professor Quiggin. Threadsters who ignore my wishes in this regard will find their comments deleted.