The Trans-Pacific Partnership: Good Or Bad Idea?
Also: Who Wins And Who Loses??
Everyone from President Obama to trade analysts and economic pundits can speculate on what the Trans-Pacific Partnership will mean for the US economy, but the simple fact remains: no one can predict the future with any level of certainty. Many Americans fear that the pact will further decimate an already-struggling U.S. Economy by exporting more jobs. But are there counterbalancing benefits that could make this hotly-contested pact a good idea?
The Internationalist Page suspects that the implementation of this massive pact will be a net hindrance and a drain on the U.S. domestic economy, but it is impossible to say so definitively. Additionally, it seems likely that the biggest beneficiaries of this deal's going live would be the largest corporations, while small to medium-sized businesses and employment (inclusive of jobs creation) would be dealt the detriments...
After all the shouting, are we any closer to knowing whether free trade agreements (in general) are good or bad for the country – and for the wallets of the American citizens of Main Street? No, but sentiment is largely negative amongst labor, the shrinking middle class and small to middle-sized businesses.
The attempts to provide answers to those questions have been thrust into the spotlight by President Barack Obama’s futile last-minute efforts to muster his lame duck power to freely, almost single-handedly negotiate what would be the world’s largest free trade pact to date: the Trans-Pacific Partnership ("TPP").
In the eyes of those within his own party, including the House minority leader, Nancy Pelosi, free trade agreements have been disastrous for ordinary Americans, hurting their wages, eroding the health of entire manufacturing sectors and putting the United States at a disadvantage against countries that engage in underhanded trade practices (or who are simply more efficient producers and suppliers of products and services than the U.S.).
Their success last week managed to strip President Obama of fast-track negotiating authority, pushing him into an unusual and awkward partnership with congressional Republicans in an effort to find a way to rescue the package of legislation by restructuring it in the manner of a typical legislative compromise.
All of the participants in these high-stakes congressional battles argue that they have based their positions on what they believe is in the best interest of "ordinary" Americans. The president pitches TPP as a win-win: US companies will find new export markets, he argues, while export-dependent countries like Vietnam end up paying higher wages than average (the treaty also contains new labor standards that Vietnam and other low-wage countries would have to abide by -- but they will be largely difficult to verify and enforce). It’s also strategically important for the United States to coordinate some kind of free trade zone, seizing the initiative from Asia’s dominant power, China.
Opponents, meanwhile, point to what they argue is a pattern of job losses and wage declines at home following free trade agreements. Those who have read the still-secret document voice concerns about everything from the dispute resolution process to environmental protection rules. A draft version of the trade pact posted by WikiLeaks opened up the prospect that pharmaceutical companies might be able to challenge the prices that national health authorities, including Medicare, pay for drugs.
Meanwhile, the whole debate is complicated by the fact that the TPP draft is a work in progress, and thus is being kept secret. If you want to read it, you’re out of luck. So giving the president fast-track negotiating authority would have been a giant leap of faith on the part of Congress.
Which brings us to the main point. Negotiating a free trade agreement is always going to involve a leap of faith – a leap of faith in the future. There is no way, even if someone took up WikiLeaks’ $100,000 offer for a leaked copy of the full 29 chapters of the draft treaty as it stands today, that it would be possible to gauge just what its impact would be on Americans today, a decade from now, or 25 years down the road. Not, that is, without a fully functional crystal ball. There are simply far too many variables involved, and too many “unknown unknowns”.
Consider the US-South Korea free trade agreement, completed in 2010 and in effect from 2012. Far from helping US exports to South Korea to climb, they have fallen as imports from South Korea have risen, causing the trade deficit to widen.
The problem with those who try to draw conclusions about free trade agreements in general from this example, however, is twofold. Firstly, it covers the experience of only about two years: an absurdly short time frame. Secondly, economic growth rates in South Korea peaked in 2010, the year the free trade pact was negotiated and all those rosy forecasts about US exports were drawn up. Right now, however, the economic picture looks bleak, and it’s probably fair to say that few expected that would happen.
Trade volumes look fine, but the value of that trade isn’t what it should be; the country’s central bank is slashing interest rates to weaken the value of the Korean won, making those exports cheaper and bolstering domestic demand. Even before the Middle East respiratory syndrome (Mers) crisis hit the country, taking (at last count) 15 lives and proving a further drag on the economy, the International Monetary Fund (IMF) had already cut its estimates for Korea’s 2015 growth. It’s fairly hard to realize the full benefits of an agreement with a trading partner whose economy has just run into a wall.
The picture gets even more confusing if you try to look at the father of all U.S.- structured free trade agreements, the North American Free Trade Agreement, or Nafta. Signed by Canada, the US and Mexico in 1992, Nafta served as a prototype for many of the large trade agreements that followed, including TPP; it also was one of the first free trade pacts between economies with varying standards of living, labor standards and other business and environmental rules. But how good was it for the citizenry of the United States?
Critics argue that by 2010, a total of 682,900 jobs had been lost to Mexico, on a net basis. Of these, 415,000 were manufacturing jobs, many of which paid healthy living wages. Meanwhile, a small trade surplus with Mexico had become a deficit by 2000.
Except … it wasn’t all that simple. Had those jobs not gone to Mexico, would they have stayed in the United States? Not necessarily, suggested Mauro Guillén, a management professor at the Wharton School of Business; they might well have ended up in China. Meanwhile, some of the products made in Mexico are still being designed in the United States, he has noted.
In 1995, the year after Nafta took effect, Mexico had its own financial crisis, causing the value of the peso to nosedive and triggering a recession. As is the case with South Korea today, events that had nothing to do with the free trade agreement itself ended up causing a big drop in Mexican imports from the United States. The timing, however, made it appear as if the trade deficit was tied to free trade – but correlation isn’t causation. More recently, US demand for crude oil produced by Mexico, and the high prices for crude, sent that trade deficit higher again. Once again, that imbalance had nothing to do with free trade and everything to do with a supply/demand imbalance for crude oil within the United States.
There’s a real source of concern here – the fact that American incomes have continued to stagnate in the period since Nafta kicked off the negotiation of free trade agreements. Again, however, correlation isn’t causation. The biggest culprits may include technology that has made it easier for workers in low-wage countries like China to do jobs that were once done here in the United States – or the policies of companies with respect to how they treat their work force. Apple already can choose to make its products in China, Vietnam or the United States. Their choice is clear.
David Autor, an economist at MIT, argues that it is the spike in global trade, not free trade agreements, that has led to this result; he calculates that imports from China (not party to any free trade agreement with the United States) are responsible for 21% of the plunge in American manufacturing.
None of this means that the TPP is certain to be a great idea – or a bad one. Folks like the president and David Autor may argue all they like in favor of the pact, suggesting that it will give us an edge against China and, by protecting our intellectual property, help us expand our exports of computer services. Critics can charge that it will be a disaster, costing millions of jobs, accelerating climate change and doing untold damage to everything from our access to healthcare to worker’s rights.
The fact remains that even if we opened the vaults, distributed copies of the draft treaty and settled down to a great national debate about what it means, we simply wouldn’t know for certain. Yes, we could indulge in some scenario analyses, but given the squabbling among economists over which models to use and how to calculate the benefits and losses, and the difficulty in reaching a consensus on Nafta’s impact 23 years after it came into effect, I’m not sure that would prove all that helpful.
The fact of the matter is that regardless of all speculation, conjecture and analysis, the ultimate net cost or benefit of the Trans-Pacific Partnership is difficult, if not impossible, to ascertain.
For the purposes of The Internationalist Page, if asked to weigh in, our suspicion is that the pact will cause a further erosion of the United States' economy, despite the appealing concept, in theory, of opening up more channels to international trade.
With or without the enactment of the TPP, the globalization of the world economy by businesses will move economies, wealth, wages, employment, jobs creation, the balance of trade and the balance of payments for the United States by its own momentum, without the need to legislate forced change.
At the risk of sounding arrogant, it would appear, at least for the present, that TPP (which sounds a bit reminiscent of a toilet paper brand) is a weakened U.S. comeback (or attempted comeback) against economic domination by China through the ordinary market forces that govern the geopolitical universe. And perhaps, the only way in which the U.S. is going to stand up to the perils of a dominant China would be to increase domestic production efficiency.
Also, it would seem (history being what it is) that this cautiously-closeted deal stands to benefit the largest of U.S. corporations (due to cheap labor and supply-chain benefits), and would stand to hurt smaller businesses and domestic employment and jobs creation. This broad stroke of government rule-making would likely widen the already increasing divide between the extremely wealthy and the working poor.
While I am an ardent Internationalist, I am not in favor of increased government intervention (via international treaty) to solve this nation's economic problems.
Thank you, as always, for reading me.
Douglas E. Castle
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THE INTERNATIONALIST PAGE - Douglas E Castle
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