Debating in the Dark: Friends and Enemies of the TPP

Figures on US economic performance continue to disappoint. Seven years out from the greatest financial crisis since 1929, economic growth is sluggish, levels of unemployment and under-employment remain unacceptably high, and real wages for most Americans are still trapped at 1970s levels. Not that the United States is alone in any of this. Globally, important regions of the world economy continue to underperform – Europe certainly does – or to struggle to retain rapid economic growth, as with China. Not surprisingly in consequence, the figures on world trade also continue to disappoint;[1] and because they do, it is tempting to draw a causal relationship between these various sets of data. It is tempting to argue that the route to greater economic growth – both here at home and through the global system as a whole – is best anchored in an expanded level of global trade. It is against that background, and that temptation, that we have spent the last month awaiting the release of the details of the Trans-Pacific Partnership. It is a proposed partnership that all Americans need to both understand and evaluate.

                The Tran-Pacific Partnership (TPP) signed in early October is a trade deal encompassing the United States, Japan and 10 other Pacific basin nations (Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) that collectively account for 40 percent of global economic activity. It is a trade deal that Congress will soon have to vote on, and so – in so far as we elect members of Congress – will we. But in making that judgment call, until today at least, the American electorate in general faced one rather unusual problem: namely lack of access to the details of the agreement itself. Until now, those details had not been generally available.[2] Some had been leaked by Wikileaks;[3] and now at last all of them have been released by the White House.[4] But before that release, all we had to go on were the views of people who had seen the details of the TPP, and the views of those who, excluded from access to those details, saw in their exclusion even greater reason to be wary or hostile about a trade deal that has been so long in the making and so hyped in the run-up to its delivery.[5]

As we now go into the period of TPP’s public debate, the views currently available to us go something like this.

THE ARGUMENTS FOR THE DEAL

The claims made for this deal by those who advocate it are remarkable. As the President put it

“This partnership levels the playing field for our farmers, ranchers and manufacturers by eliminating more than 18,000 taxes that various countries put on our products. It includes the strongest commitments on labor and the environment of any trade agreement in history, and those commitments are enforceable, unlike in past agreements. It promotes a free and open internet. It strengthens our strategic relationships with our partners and allies in a region that will be vital to the 21^st century. It’s an agreement that puts American workers first and will help middle-class families get ahead.”[6]

Breaking those claims down into their component elements, we get at least the following:

THE TPP is a powerful trigger to enhanced economic growth

Boosting American exports is a central part of the Administration’s strategy for the generation of economic growth and rising standards of living here in the United States. “The more we sell abroad,” the White House website on the TPP tells us – in letters emboldened to underline the importance of the claim – “the more higher-paying jobs we support here at home.” And how could it be otherwise, when “ninety-five percent of the world’s consumers live outside our borders,” and when “made-in-America products and services are in demand, making American exports a vital pillar of our 21^st century economy.”[7] According to its advocates, the TPP can only strengthen this vital US overseas economic performance. As the report issued by the Petersen Institute for International Economics put it: the TPP “could yield annual global income gains of $295 billion (including $78 billion for the United States) and offers a pathway to free trade in the Asia-Pacific with potential gains of $1.9 trillion….The TPP and Asian tracks are large, positive-sum projects that promise substantial gains to all participants.”[8]

This, against a background of previous trade liberalizations that since 1945 have, we are told, “added nearly $13,000, on average, to each American family’s annual income.”[9] The TPP is thus presented by its advocates as the culmination of a long bipartisan tradition of US trade policy that stretches back to at least the trade agreements signed in the 1930s by FDR. So why stop now, they ask us, when previous trade agreements have been so beneficial to the US economy in general and to US consumers in particular? Why stop now when the TPP contains for the first time, embedded in its details, a free-trade agreement between the second and third largest economies in the world – the United States and Japan. That alone is enough to mark the TPP as an agreement of world historical significance.

A rule-based international trading order is in the United States’ long-term economic interest

The White House also wants us to know that “right now, our current trade policy…puts our workers and businesses at a disadvantage, with higher costs for American goods, more barriers to trade, and lower standards for workers and the environment abroad than we have at home.”[10] Moreover, the Administration concedes that previous trade agreements have not always lived up to the promises contained in their accompanying labor and environmental standards, but insists that this time things will be fundamentally different. This time round, as they put it: “tough, fully enforceable standards will protect workers’ rights and the environment for the first time in history,” – standards that “reflect our American values,” put in place on the explicit understanding that “when the rules are fair, America can out-compete anyone in the world.”[11] The result – if the advocates of TPP are correct – is a trade agreement bringing growth that will be simultaneously “equitable, sustainable and inclusive.”

The growth will be equitable: it will lower barriers on consumer goods more commonly bought by low-income Americans. The growth will be sustainable: it “will help protect oceans, forests and wildlife in one of the most ecologically significant regions in the world.” And it will be fair: by spreading “basic labor rights across a diverse range of countries at varying levels of development, underscoring that no country is too poor or under-developed to respect workers’ basic dignity, protect children and outlaw enforced labor.”[12] The environmental clauses in the finished TPP are particularly worthy of note here: according to their advocates, substantial steps to “enforce prohibitions contained in the Convention on International trade in Endangered Species….and to limit subsidies for fishing fleets which in many countries waste taxpayer money and accelerate the depletion of marine life.”[13]

Geo-political concerns legitimate this global economic strategy

                In any case, there is more at stake in this trade agreement than simply US growth rates and rising standards of life. The TPP is currently being presented by its supporters as the economic equivalent of the Pentagon’s repositioning of US military priorities – the Obama Administration’s “pivot to Asia” – the rebalancing of foreign policy towards the maintenance of a sustained US military presence in the Pacific basin. On this argument, trade deals like the TPP do more than open a pathway to more free-trade settlements between important markets in an area that “by 2020… two-thirds of the world’s middle class will call…home.” Such trade deals also embody and reassert American regional leadership. Michael Froman (the US trade representative overseeing the TPP negotiations) put it this way: by giving the United States a leading role in writing the rules of the road for tomorrow’s global economy, the TPP will help shape the broader environment in which that growth takes place.”[14] To many observers, this presentation of the TPP’s importance is really diplomatic code for ensuring that the main leadership role in so key an area of the global economic order does not slip by default into the hands of the Chinese Communist Party. Or as the President himself put it in his 2015 State of the Union Address, for the Asia-Pacific region as a whole, “if we don’t write the rules, China will.”[15]

The general case for unfettered free trade remains firmly in place…

…and because it does, it follows that whatever else we must do, we must “not fight free trade – it makes countries richer.”[16] The whole history of capitalism – suitably told – can be made to sustain the claim that free trade and economic growth go together; that the competition triggered by the free exchange of goods and services is a critical spur to efficiency in production and innovation in technology; and that – if countries can be encouraged to specialize in that form of economic production for which they enjoy a particular comparative advantage, then free trade is a huge spur to the efficient allocation of capital, the greater productivity of labor, and the generalization of high and rising living standards. It is unfortunately true, of course, that while – if the Petersen Institute’s modeling is correct – under the TPP, US “manufacturing exports would increase… overall the United States would become more import-dependent in manufacturing to offset its expanding service export surplus.” But even so, why worry about a growing trade deficit in basic consumer goods when it is well known that “any costs associated with free trade are temporary, slight and focused, while its benefits are permanent, substantial and general.”[17] Which is why, according to the TPP’s advocates,  sensible public policy should soften any immediate blows to jobs and incomes by extending the TAA (Temporary Adjustment Assistance) programs already available to displaced workers, whilst fast-tracking presidential authority to both sign and implement the full set of TPP agreements and protocols.

THE ARGUMENTS AGAINST THE DEAL

                The leading critics of the deal match its advocates in the sweep of their counter-claims. This, for example, from Bernie Sanders

“Let’s be clear: the TPP is much more than a ‘free trade’ agreement. It is part of the global race to the bottom to boost the profits of large corporations and Wall Street by outsourcing jobs; undercutting workers’ rights; dismantling labor, environmental, health, food safety and financial laws; and allowing corporations to challenge our laws in international tribunals rather than our own court system. If TPP was such a good deal for America, the administration should have the courage to show the American people exactly what is in this deal, instead of keeping the content of TPP a secret.” [18]

Among the major counter-arguments are at least the following:

The TPP is not a trade deal in the traditional sense, so standard free-trade arguments do not apply

                It is not as though free-trade agreements do not already exist among many of the signatories to the TPP. They do. The United States has such deals with six of them. Japan apart, the TPP just adds the “tiny economies of New Zealand, Brunei, Malaysia and Vietnam.”[19] What the TPP will add to those already existing agreements is less the further freeing of trade than the managing of it; and moreover, the managing of it in the interests of big corporations rather than in the interests of either small businesses or the American consumer. That is certainly the judgment of Joseph Stiglitz , who recently put it this way. “The reality is that this is an agreement to manage its members’ trade and investment relations – and to do so on behalf of each country’s most powerful business lobbies. Make no mistake,” he and Adam Hersh wrote, “it is evident from the main outstanding issues” over which negotiators were still haggling as they drafted their note, that whatever the TPP is about, it is ”not about ‘free’ trade.”[20] Indeed, there is a smack of chicanery in the way this deal is being promoted, of which we all need to be aware: since, to quote Allan Beattie, while the TPP “may or may not be a good idea.… it should be clear that mouthing old verities about free trade and putting a great deal of weight on highly uncertain modelling of its effects is an intellectually sloppy way to sell a trade deal.”[21]

Of course, given the secrecy of the haggling to which Stiglitz and Hersh referred, until now it has been impossible to judge just how influential each business lobby has been: but “given the outside influence of special interest groups and politically connected corporations,” it seems reasonable to bet that the final product, now that we can examine it,  will prove to be “a far cry from free trade:” particularly given one of the key elements in the pattern of settlement leaked earlier – the one in which “ironically enough, producers and manufacturers in developing countries have been pushing to reduce trade barriers in order to capitalize on markets in developing countries” while “U.S. corporations are lobbying to keep protective tariffs in place.”[22] We are well past that moment when David Ricardo-like lessons on the benefits of comparative advantage should be the bed-rock of our understanding of international trade. The rules of mercantilism still prevail in the clash between different national capitalisms,[23] and if we do not fight our corner – directly protecting American employment and American wages – no amount of free-trade will keep those wages and jobs secure.

The main beneficiaries of this deal are going to be large-scale US companies

                At least two dimensions of that on-going lobbying worry critics of large corporate capital. One dimension – already visible in the material available from Wikileaks – is the pressure, particularly from large U.S.-based pharmaceutical companies, for stronger patent and copyright protection:  the use of enhanced intellectual property rights within the protocols of the TPP to reinforce corporate market power.[24] The other are the proposals contained in the TPP to give large corporations greater leverage against national government control via access to international arbitration panels: the so called “investor-state dispute settlement” (ISDS) provisions. If the TPP passes, companies opposed to a particular government regulation – say, restrictions on the advertising of cigarettes – will be able to appeal that decision to an international body created by the TPP, and so, if successful in that appeal, able to block the will of an elected government in the pursuit of its corporate enrichment.

If what has been leaked so far turns out to be the case when the agreement is examined in detail, the TPP will actually “extend the incentives for US firms to offshore investment and jobs to lower-wage countries” and “establish a two-track legal system that gives foreign firms new rights to skirt US courts and law, sue the US government before foreign tribunals, and demand compensation”[25] for the costs of complying with new environmental and labor standards. We already live in a democracy that is corrupted to its core by the presence of billionaire-funded PACS, and in an economy weakened at its core by the unregulated offshoring of production and employment. Are we now to add further corporate protections against business regulation by democratically-elected governments? Let us hope not, but what we know so far about the details of the TPP is not reassuring on this matter.

To the degree that TPP is a typical trade deal, the evidence of past deals is not encouraging

                For there is a real sense of déjà vu in much of what is coming out in the media on the TPP deal – an echo in the current pitch for the trade deal of the pitch made, two decades earlier, for NAFTA.[26] Indeed, Representative Paul Tonko (D-N.Y) recently characterized the TPP as “NAFTA on steroids.”[27]  NAFTA too was going to generate middle class affluence by lubricating the flows of cross-border trade. Yet in practice NAFTA cost US manufacturing jobs. Quite how many is still disputed: but perhaps as many as 700,000.[28] Lowering tariffs on imported goods made by cheap labor abroad – if that is what the TPP brings – seems inevitably set to do the same. As Dave Johnson has already written, “an example of the effect TPP will have on US manufacturing is Nike vs New Balance.” Nike already outsources its shoe production to Asia. New Balance is trying to avoid doing the same. But “when tariffs on imported shoes are eliminated Nike will gain an even greater advantage over New Balance. New Balance has said that the tariff reductions in TPP will force it to stop manufacturing inside the US.”[29] As we saw earlier, even the Petersen Institute conceded as much: that the US manufacturing trade balance will worsen under the TPP.

So countering the agreement’s adverse employment effect by stressing its contribution to export growth is not going to cut it. As Dean Baker put it about the TPP’s advocates’ enthusiasm for export growth: “Who cares? If GM moves a car assembly plant from Ohio to Mexico, it increases exports because the car parts that were being shipped to Ohio will now be exported to Mexico.”[30] But in the process, so too will US manufacturing jobs. Five million manufacturing jobs were lost in the United States between 2000 and 2015, and the largest single cause of that decline was the growing US trade deficit in manufactured products.[31] As the EPI’s Robert E. Scott has recently shown, the US trade deficit with the signatories of the TPP “increased to an unexpectedly large $265.1 billion in 2014.”[32] So the reconstitution of the economic health of the American middle class may need many things: but one thing that it certainly does not need is another job-killing trade deal, at a time when job-killing is already rampant in the US manufacturing sector. Just how many lopsided trade deals do American workers have to suffer before their political leaders grasp this fundamental and all-encompassing truth?

The need to count on both sides of the ledger

                It is the case that lowering American tariffs on the entry of consumer goods produced in low-wage economies overseas benefits American consumers by reducing the price of the goods they buy. American incomes go further. The TPP’s advocates are right on that at least. But that gain for American consumers has to be set against the loss of income/jobs by those American workers who hitherto produced the same/similar goods here in the United States but whose companies now lose market share to foreign competitors. This hidden face of increased global trade has long been recognized – certainly from the Kennedy years at least – and legislation exists (TAA) to attempt to soften the blow. That blow is temporary and able to be softened, however, only if the required movement to similar well-paid jobs in other parts of the US manufacturing sector can be easily accomplished. But in the bulk of contemporary cases, it cannot. It cannot because this movement from job to job invariably involves moving long distances, and TAA retraining assistance is of no help with the cost of relocation. And it cannot because, these days, there are fewer and fewer of those jobs left in the US manufacturing sector to which such displaced workers can move. More TAA funding is no answer here because so many parts of the US manufacturing sector have already relocated their basic production facilities overseas, and because any remaining manufacturing firms who are positioned to benefit most from the TPP employ far fewer workers than those likely to be adversely affected by it.

Not surprisingly, therefore, the EPI’s recent calculations suggest that, taking the US labor force as a whole, non-college trained workers are likely to be the ones most hurt by the shifting balance of gains and losses associated with the TPP, with maybe a full 70% of US workers likely to see their real wages diminish through the full implementation of the trade deal.[33] And even if that estimate proves to be excessive, there is no getting away from the fact that what the US now needs is not free trade agreements that facilitate the further outsourcing of manufacturing employment, but instead active industrial policy designed to pull manufacturing production and employment back into the United States. Otherwise, there will be no breaking free, here at home, of what elsewhere we have called “the Walmart effect.”[34] That is, there will be no escape from that syndrome of falling wages that obliges ever more American workers and their families to buy inexpensive and shoddy goods, goods whose production abroad in cheap labor markets then undercuts the ability of American workers to escape the need to shop only where goods are cheap and shoddy.

A crazy way to handle China

                Finally, this on the counter-argument side. The TPP, as currently negotiated, is a crazy and ineffective way to prevent China setting the rules of Asian trade or of capturing more of it. There is no penalization inside the TPP – if what we know now holds when the details are carefully examined – to prevent currency manipulation. Yet it is widely recognized that the undervaluation of their international currency is a key reason for China’s continuing capacity to capture a growing proportion of world trade. Nor will China simply stand by and let an Asian trade bloc squeeze them out. China is already negotiating bi-lateral trade deals with many TPP signatories, and building its own “silk road” to Europe.[35] So if the US wants to subordinate China to its rules, the inclusion of China within an agreed Asian-Pacific trade deal seems not simply desirable, but also essential.[36] And if it essential, now is not the time to sign a TPP from which China is excluded.

CONCLUSION

Much still turns on what the TPP actually contains, which is why the next weeks and months will be so critical, as experts and commentators dig deep into the detail of what is a truly enormous agreement: one that contains 30 chapters, a myriad of detailed annexes, and a string of related instruments. This week, Dave Johnson issued a set of questions that he thinks we should all bear in mind when working our way through the small print of the deal. His are important questions, and I recommend them to you for careful consideration and use.[37] You will find, if you do look, that the Johnson questions are the right ones, and that we should support the TPP only if the answers they elicit are the right answers. If you look, you will also see that the Johnson list of questions is a long one; and that the number of the questions, as well as the substance that each question probes, is key here. Indeed, given the length of that list, and the legitimacy of the concerns which the questions articulate, the chances of progressive people giving the TPP their support must be low. But either way, the onus of proof has to be on the advocates of the trade deal. The emptiness of past promises stands as a stark warning of the likely emptiness of the promises now to come. We know the trade deal that America needs. It is one that brings manufacturing industry back to America, and helps restore rising employment and real wages to the American middle class. If the TPP does not do that, it does not deserve our support: and if it does not deserve our support, that support should not be given.

For the general case for managed trade rather than free trade, see

David Coates, Making the Progressive Case: Towards a Stronger U.S. Economy.

New York, Continuum Books, 2011.[38]