Why Dropping the Trans-Pacific Partnership May Be a Bad Idea
Eduardo Porter | JULY 26, 2016
It might seem pretty painless, at this juncture, to throw the Trans-Pacific Partnership under the bus.
It has very few friends in Washington. Even Hillary Clinton, who once supported it as the “gold standard” of trade agreements, has since concluded it is not up to scratch.
An analysis by the United States International Trade Commission pushes, sort of, in the “pro” direction: By the 15th year of the agreement, the commission estimated, gross domestic product would be $42.7 billion bigger and there would be 128,000 more full-time jobs.
But that would barely scratch the surface of an economy that already generates $18 trillion a year and will probably be at least double that in 15 years. Wages would be a trivial 0.19 percent higher than otherwise. Unskilled labor would reap 25 percent of the modest gains, the commission estimated, against 41 percent going to skilled workers and 34 percent to business owners.
This hardly adds up to a chest-thumping endorsement.
With an angry insurgency of white, working-class voters propelling Donald Trump’s agenda to wall off Mexicans, ban Muslims and batten down the hatches against products made in China and elsewhere, even the most articulate champions of the liberal trading order wonder whether Washington’s globalization campaign may have finally overstepped.
“We may have to pull back the rhetoric for open borders, open capital flows, open trade,” said Eswar Prasad, a professor of trade policy at Cornell. “Maybe we should take a breather from that because the pushback against this agenda could put us in a worse place.”
Still, the prospect of killing the trade and business deal, which would lower tariffs in a dozen nations around the Pacific Rim and wrap them into a set of rules of the road, immediately raises a question: What happens next? Is the alternative of no deal — and the absence of the United States means there would be none at all — any better?
Like the Clinton administration, and that of George H. W. Bush before him, the Obama administration’s trade diplomacy is not just about gaining access to foreign markets and advancing the interests of American business abroad.
The North American Free Trade Agreement was supposed to promote development and economic stability in Mexico. Allowing China into the World Trade Organization was part of a strategy to draw the most populous nation on earth into the rules-based fold of the market democracies.
Neither strategy performed flawlessly, to say the least. The introduction of Nafta could not prevent a crippling economic crisis from blowing up in Mexico just a few months later. It certainly did not stop unauthorized immigration. China, contrary to Washington’s rosy predictions, hasn’t embraced democracy. And it has often found ways to bend the trade rules and manipulate its currency.
What’s more, the trade agenda has produced real collateral damage in blue-collar America. By essentially eliminating the risk that the United States might arbitrarily impose higher tariffs on Chinese goods, Beijing’s entry into the W.T.O. unleashed a wave of investment in China to serve the American and global markets that ultimately decimated many manufacturing jobs in the United States.
And yet despite the merits of these critiques, what would have happened had these deals not come to pass? As social scientists like to say, what are the counterfactuals?
There are clear benefits from Mexico’s integration into North American supply chains. It helped modernize the Mexican economy, providing jobs for the many workers exiting an unproductive farm sector under pressure from a variety of economic forces. Barring Nafta, unauthorized immigration might have even been larger.
Similarly, the argument for bringing in from the cold what would inevitably become the world’s largest economy was hardly crazy. “If China had not joined the W.T.O., relations with China would have been much worse,” noted Kenneth Lieberthal, a veteran China hand who served on President Bill Clinton’s National Security Council. “Every economic and trade disagreement would have been a bilateral disagreement, and China would not have opened its economy as much as it has.”
America’s embrace of an aggressive globalization agenda over the last half-century must be rethought. For starters, policy makers should act on the promise — empty so far — that some of the gains accruing to winners will be deployed to make the losers whole. That means investing in training, income support and the like.
It’s also time to rethink some of the basic tenets of trade deals, including the way international rules are used to constrain democratic decisions within nations. Whatever the economic merits of easing the access of American companies to world markets, a trade agenda devised to serve corporate interests is no longer politically tenable.
As Dani Rodrik, an economics professor at Harvard, put it: “Once you accept the prevailing terms of the discussion – that trade negotiations are about exchanging market access, that financial globalization is a desirable end goal for everyone, that Congress can have limited input into trade agreements, etc., then you have necessarily tilted the playing field in favor of those particular interests.”
But does this build an argument to nix the Trans-Pacific Partnership? That deal doubles down on some of these sins, particularly when it comes to protecting the interests of the pharmaceutical industry. But it is also true that by the standards of past trade agreements, the partnership does better in looking out for the interests of workers.
“We want to make sure that the benefits of trade are broadly shared,” said Michael Froman, the United States’ top trade negotiator. “Not all trade agreements in the past met the needs of the broad public.” In Nafta, agreements on labor and the environment were afterthoughts. They are a central part of the Trans-Pacific Partnership.
In fact, critics of the terms under which China joined the W.T.O. should like the Pacific trade deal much better. “The T.P.P. is an antidote,” said Nicholas Lardy, a China expert at the Peterson Institute for International Economics. “It offers a higher standard with more protections” for American companies and their workers.
For strategic reasons alone, walking away may be a bad idea.
China may not be in the Pacific trade deal, but the deal, to a large extent, is about China. If allowing it into the W.T.O. was about bringing it into the rules-based system, the Pacific trade deal establishes a ring of rules around it. It is a guarantee to China’s nervous neighbors of Washington’s commitment to the region and an effort to set standards for Asia’s economic integration.
Killing the deal would smack America’s Asian allies — such as Japan and Vietnam — as betrayal. China would love it.
“If the idea of retrenchment were to take hold and the T.P.P. were to stop, it would be a blow to U.S. influence and credibility more broadly,” Mr. Prasad, the Cornell trade expert, said. “If the United States can’t deliver, it’s going to hurt legitimacy and credibility. That is going to be a pretty big stain.”
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