FREE SERVICES > FREE TRADE

Trump’s new NAFTA supports tech monopolies like Facebook and Google

Under the banner of promoting competition, we’ve actually stifled it.
Under the banner of promoting competition, we’ve actually stifled it.
Image: Reuters/Dado Ruvic
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Free trade agreements used to be about promoting competition—but now they’re often promoting monopolies.

For the last two years, US president Donald Trump has been promising an overhaul of North American trade relations to benefit the middle class. Earlier this month, the administration finally released the legal texts for this new deal, the North American Free Trade Agreement (NAFTA) 2018. While Trump did keep his promise to renegotiate NAFTA, the new agreement would be a major setback for addressing another critically important aspect of improving the economy: fighting monopoly power.

In recent years, many sectors of the US economy have become increasingly concentrated. This has serious downsides: In addition to raising prices and lowering quality for consumers, it increases economic inequality, lowers wages, stifles new business formation, and threatens to create gigantic conglomerates that can use their economic power to buy political influence.

In an attempt to provide balance, scholars, policymakers, and advocates are calling for stronger antitrust enforcement. Their suggestions take the form of blocking corporate mergers, prohibiting actions that exclude competitors and limit consumer choice, and breaking up large monopolies whose existence poses a threat to economic wellbeing.

But free trade agreements like NAFTA 2018 threaten these efforts—especially when it comes to a new type of monopoly.

Free services ≠ free trade agreements

In textbook economics, monopolies exert their power by jacking up prices of the goods and services that the public require. But many of the companies we interact with now give their services away for free, such as Facebook, Google, and Twitter. These businesses can’t force us to pay more—but that doesn’t mean they’re not monopolies.

Currently, the metric that courts use to determine whether or not monopolies will harm the public is called the “consumer welfare standard.” Under this rule, plaintiffs, including the government, have to prove that whatever conduct or merger they are challenging would make consumers pay more. In these cases, “harm” is almost always defined as an increase in the prices consumers have to pay.

But modern monopolies seize control in more ways than raising prices.

To see how hopeless current antitrust laws are at preventing modern monopolies, consider the US courts’ approval of the $85.4 billion merger between AT&T and Time-Warner in June this year. The deal meant that channels and services like HBO, CNN, Cartoon Network, DirecTV, Cricket wireless, and AT&T mobile services would be brought under one roof. Such a move posed serious concerns, such as limiting the number of outlets creative content producers would have to screen their ideas, leveraging control of wireless networks to entrench only the content the mega company wants its customers to see, and stifling much-needed diversity in the news media.

That sounds like pretty good grounds to reject the merger, right? Wrong.

The government had its hands tied. It was forced to make only one kind of argument: Would prices go up for AT&T’s pay-TV consumers? When expert witnesses reached inconsistent predictions about the consumer price effect of the merger, the judge greenlit the deal.

Antitrust laws therefore need to be rewritten to better reflect the current business environment. This is especially true for the tech sector, where services are often provided for free (often in exchange for your data). Companies like Facebook and Google don’t charge consumers a dollar amount for sharing photos or searching for take-out options; “free stuff” isn’t covered by the consumer welfare standard.

We need to update our policy tools for these new types of monopolies. This takes us back to the international trade debate.

New NAFTA, old problems

Fifty years ago, trade treaties were mostly about reducing tariffs, which are a type of tax on imports. These deals were about increasing the foreign competition that domestic companies faced, thereby forcing them to lower prices for consumers. While this could help hold down costs for family budgets, it also displaced workers and lowered wages in those downsizing industries—just as standard trade theory would predict.

But a funny thing happened over the last several decades. Lobbyists, concerned that only a few export-oriented manufacturing industries were invested in trade negotiations, sought to widen the net to firms that specialize in services and intellectual property.

The result? The scope of trade agreements was expanded to include rules that actually limit competition; agreements signed by presidents Clinton through Obama actually raised protections for monopoly pharmaceutical companies. This both entrenched the political power of Big Pharma while increasing costs for consumers around the world. Under the banner of promoting competition, we’ve actually stifled it.

Even though president Trump called the original NAFTA the “single worst deal ever approved,” his 1,800 page NAFTA 2018 redux reveals a deal that is more continuity than change. The Sierra Club, a leading environmental organization, called it a handout to oil companies and polluters like the original agreement, while Trump’s congressional ally Senator Chuck Grassley (R-Iowa) said “95% of what we will be voting on is the same as NAFTA.”

One of the biggest changes to the new document is adding in the consumer welfare standard. (It also added new protections for biologic drugs like Humira, which is used to fight Crohn’s disease—if you’re medicine price-hiking Martin Shkreli, this trade deal is for you.)

The addition of the consumer welfare standard to NAFTA means that if the US or our trading partners ever tried to expand the toolkit to deal with new kinds of monopoly power like Facebook, we could be in violation of international law. Tech or pharmaceutical companies, for instance, could lobby the Canadian or Mexican government to diplomatically challenge the hypothetical new rules as a way to weaken or get rid of them.

This is another arrow in Facebook’s quiver. Instead of relying only on their clout in Washington to push back against consumers’ demand for more regulation of the monopoly, these companies now have another way to stymie challenges that arise in the US or elsewhere.

Trade agreements don’t have to support monopolists. The European Union, for its part, uses a distinct approach to competition in its trade deals, one that gives regulators a much wider lens than the narrow consumer welfare standard. As a result of their better approach, Europe is leading the charge on challenging Big Tech.

The new deal is therefore a missed opportunity. If our political leaders decide they want to rein in the power of the Facebooks of the world, they now face double barriers: outdated enforcement tools on the home front, and international agreements that enshrine these tools in perpetuity.

Debates over trade agreements often fall along predictable lines of “free trade” or “protectionism.” But modern trade agreements go much further than setting tariff rates. NAFTA 2018 is no exception, and if it is adopted, its provisions are likely to deepen our age of monopoly power.