What’s Really Wrong with Obama’s Pacific Trade Deal
It's a job-killing, sovereignty-busting, big-agra giveaway
Last week’s government report on the economic impact of the Trans-Pacific Partnership (TPP) didn’t simply gut-punch the case for congressional passage of President Obama’s signature trade policy achievement. The study, mandated by Congress and issued by the U.S. International Trade Commission (ITC), also strongly — if unintentionally — explained why the nation’s entire strategy toward the international economy is seriously off track.
The projected employment increase of 128,000 through 2032 is about half of what the nation has been creating in a good month during this sluggish current economic recovery.
The ITC’s headline projections hardly foresee economic disaster if the House and Senate approve the TPP. But they contrast strikingly with the economic bonanza promises of its backers, which include not only the executive branch but the major media, multinational corporations and Wall Street banks, and congressional Democrats and Republicans who front for them on Capitol Hill.
According to the commission, the TPP would increase the size of the U.S. economy by a total of just under $43 billion after inflation over the next 16 years. Since the nation’s real output already exceeds $16 trillion annually, that’s a rounding error. Gains in national income would be less than $58 billion over this stretch. As economist Dean Baker puts it, “As a result of the TPP, the country will be as wealthy on January 1, 2032 as it would otherwise be on February 15 of 2032.” And the projected employment increase of 128,000 through 2032 is about half of what the nation has been creating in a good month during this sluggish current economic recovery.
But even these paltry results are way too optimistic. As many critics have noted, the TPP lacks enforceable curbs on currency manipulation. Therefore, any member can cheapen the value of its money for reasons have nothing to do with free trade or free markets, and give its products and services artificial prices advantages throughout the new free economic zone. And three signatories to the agreement — Japan, Malaysia, and Singapore — already have rap sheets on this score.
The agreement, however, also ignores another method often employed to rig trade flows — finagling with their Value Added Taxes (VATs). Because VATs are typically imposed on all goods imported by a country, they discourage imports. And because they’re rebated for goods exported by that country, they subsidize these overseas sales.
The United States and Brunei are the only TPP countries without VATs, and they’re even easier to use to distort trade flows than currency manipulation.
But the ITC report’s biggest weakness is its assumption that the TPP’s terms will be fully enforced. That’s far-fetched for at least three reasons. First, the agreement’s most hyped provisions are those aimed at reducing or eliminating what trade mavens call non-tariff barriers — a wide variety of practices and rules and regulations that foreign governments supposedly enact to achieve domestic aims (like food safety) but also wind up impeding imports.
The trouble is, many foreign governments — especially in Asia — operate according in fundamentally ways from the U.S. public sector. Unimpressed with Anglo-American ideals like accountability and transparency, they permit secretive bureaucracies to create and administer these rules and arrangements. So they’re excruciatingly difficult for outsiders even to identify with confidence, much less combat.
Second, sheer logistics will sandbag adequate enforcement of new TPP standards on labor rights and environmental protection. Even in a relatively small TPP economy like Vietnam, the factory complex numbers in the tens of thousands, and is growing rapidly. How many American bureaucrats will need to run around the country ensuring that they’re all treating workers fairly, and preventing pollution?
U.S. leaders should present to trade partners the conditions they’ll need to meet to win and keep the privilege of doing business with America.
That’s why the ITC openly admits that the impact of these measures can be “difficult to quantify” — and sometimes impossible. But since most seek to move the TPP zone’s business climate closer to U.S. standards, any failures on this score are bound to reduce the benefits to America.
Third, any U.S. efforts to enforce this new regime or resolve disputes in America’s favor will be handled by a dispute-resolution system numerically dominated by countries determined to preserve the trade status quo. After all, existing arrangements have enabled most of them to wrack up large surpluses — and therefore grow — at America’s expense. Why would they approve decisions that sour this sweet deal to any extent?
Most critics, especially mainstream Democrats, claim that the tighter, less business-friendly rules can fix trade deals like TPP. But opaque bureaucracies, sharp enforcement limitations, and stacked dispute-resolution decks would still remain in place, and their durability is sending a message that American leaders need to start heeding: When countries are determined to keep their markets closed to imports, even the most brilliantly crafted trade treaties can’t pry them open. In fact, since American barriers are typically written down, visible, and easy to litigate in kangaroo trade courts, U.S. imports are likeliest to keep rising much faster than exports — killing American growth and employment.
The obvious conclusion: Washington downplays negotiating to open foreign markets, as with TPP, in favor of a much better option for improving its trade performance. Because America is the largest, most valuable consumption market in a world full of economies that desperately need access to grow adequately themselves, Washington has ample leverage to set the terms of international trade unilaterally — and should start using it.
U.S. leaders should present to trade partners the conditions they’ll need to meet to win and keep the privilege of doing business with America — including reducing their own trade barriers — and announce that the U.S. government will be judge, jury, and court of appeals for enforcement and interpretation. A similar deal would be offered to offshoring-happy U.S. multinational companies, which have for decades been happy to profit from selling to the affluent American market without satisfactorily replenishing its wealth. Critics will charge American bullying, but other countries’ sovereignty would be fully respected. They would be completely free to reject this arrangement and seek prosperity without the benefit of U.S. customers. And including U.S.-owned firms that produce overseas would negate charges of national discrimination.
As with any dramatic policy change, the transition would be challenging, and adjustment costs would be unavoidable. But the result would be a trade approach that finally stops trying to control what the United States can’t decisively hope to influence — how foreign governments run their own economies — in favor of what it can plausibly hope to control – how it runs its own economy.
Alan Tonelson, who blogs on economic and security policy at RealityChek, is the author of “The Race to the Bottom” (Westview Press, 2002).