I have no experience in this, but, couldn’t they just agree to export and import all the things they need just like that and that’s it?
In: Economics
Each country wants to be able to freely sell their goods in the other country. This is beneficial to their citizens.
Each country also wants to obtain as many restrictions as possible on what the other country can export to them, to protect their own industries.
There is a substantial amount of negotiation about how far each country is willing to let the other go.
Big sticking points are things like each countries environmental and labor regulations – if the other country has a massively exploited labor force paid $2/day and gets rid of pollution by dumping it in the ocean they’re gonna be able to undercut your domestic production, either putting your own industries out of business or forcing your country to adopt similar practices to remain competitive. It’s not uncommon for tarrifs in situations like this to shore up domestic industries against cheap imports.
Other things that get negotiated are things like subsidies – many countries have extensive agricultural subsidies, but they allow producers to work on much lower margins than farmers in other countries. If you’re signing up to a trade deal and farmers in the other country get boatloads of corn subsidies while your domestic market doesn’t do the same it’s going to put your own farmers out of business.
Then there’s what products can be sold in each country – though this overlaps heavily with regulations mentioned earlier. For example in the US the chicken farming practices are more economical, but require eggs to be washed and refrigerated and for chicken meat to be washed in a chlorine solution. In the EU the approach to disease control is more aggressive, but more expensive, so eggs don’t need refrigeration and chicks aren’t chlorine bathed, but cost more. Should the EU change their standards to match the US? Should the US adopt EU standards? Can the EU out a tariff to equalize the pricing? Alternatively the EU has less restrictive rules on engine emissions than the US. A lot of vehicles sold in the EU are illegal in the US due to their emissions, particularly diesels. Should the US allow EU trucks? Should the EU raise their standards? Can the parties agree “this is an item that can’t be imported”? But if you go with the last option you open the door to each side using regulation to block imports from the other.
TL;DR – There are a lot of conflicting interests, and a lot of legislative and regulatory alignment items to come to agreement on.
Country A has a significant number of peanut farmers; not enough to supply everyone with peanuts, but certainly enough to create a market. Country A’s domestic peanut price will be very high because demand is much higher than supply. Country B produces an enormous amount of peanuts, so many that they could never consume all of them. The price for peanuts will be very low because there is more supply than there is demand (let’s say B can produce much more because of differences in climate, labor laws, etc… such that it is easier and cheaper to grow them in B). It seems logical that the two countries should simply agree to a free trade deal: buyers in A can purchase all the peanuts they want from sellers in B at whatever price they agree to.
But in an unregulated free trade deal, this would dramatically drop the price of peanuts in A (now that the high demand has a virtually unlimited supply), which is certain to harm peanut producers in A (A’s farmers have been relying on high prices to keep their operations profitable).
This means that A and B need to find a way to mutually benefit without putting tens of thousands of farmers out of business. They do that, in part, by agreeing to regulate the price through tariffs (taxes on imported goods) or subsidies (tax breaks on specific domestic industries). Every detail of those numbers need to be negotiated, along with any other terms, to ensure A’s farmers don’t go out of business, but B’s farmers can still make a profit by selling in A.
Repeat this process for every conceivable good that could be traded between the countries, and you’ll quickly build up a complex agreement.
Trade deals are basically formal favouritism: apply tariffs to goods coming into the country to encourage industry making within the country if possible, then use trade deals to create special relationships that remove or reduce tarrifs for specific goods moved between specific countries that basically helps the economy of those two countries but not anyone else.
For example, the European Union has a massive trade-deal where no one charges any tariffs on goods coming from another member of the deal and agrees to follow certain regulatory standards. This strongly encourages European businesses to target other European countries as their primary markets, so that any undertaking the EU does will primarily benefit the EU. The EU also negotiates trade deals with other economies as a union, meaning that on the global trade scale, the EU kind of operates as one massive country.
You are thinking about this from the perspective of a post-free-trade-deal world. For example basically every western country has honest courts. So if we are thinking about making a trade deal and you say ‘Hey, what happens if one of my businesses gets screwed by a business partner in your country?” and I respond with “well they could sue them. We have courts just like you and our rules of business conduct are basically the same as yours,” we have settled that “issue” in about ten seconds.
China doesn’t have honest courts. So that question – with China – is a HUGE sticking point in trade negotiations.
Among western nations trade deals take time mostly because every country has a few industries they treat better than they should. America for example REALLY likes aerospace companies. America gives its aerospace industry a lot of help. Canada meanwhile really likes dairy farmers and gives that industry a huge amount of help. It isn’t really fair for Canadian aerospace companies competing against US ones, and it isn’t really fair for American dairy farmers competing against Canadian ones. Instead of governments deciding to drop their favoured treatment of these industries they negotiate and Canada gets to help dairy and the US won’t complain, and the US gets to help aerospace and Canada won’t complain. That takes time though.
The REAL time suck however is when two countries favour the same industry, or when one country has a big problem with how another country is helping its local industry. Copyright, drug prices, steel, are all common examples of this that really slow down negotiations.
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