A couple of weeks ago I argued that free trade unambiguously represents a net gain for the U.S. economy and American consumers. It lowers the prices of goods and services, it allows for a more efficient economy, and it expands the U.S. economy, contributing to job growth. However, my previous post was a bit general and theoretical. Therefore, today I want to talk specifically about the Trans-Pacific Partnership (TPP), a massive free trade agreement (FTA) waiting to be approved by the legislature.
You may have heard about the TPP during some of the presidential debates. It is a modern, multilateral free trade agreement that includes members from around the Asia Pacific. While it has yet to be ratified by Congress, it was signed by the U.S. and 11 other countries in an Atlanta ballroom a few months ago. Now, it is a hot button issue among economists, political scientists, and, naturally, politicians. What’s ironic about this debate is that few of the people who oppose the deal have actually read it. It is an incredibly nuanced and specific agreement that is over 6,000 pages long, so don’t be fooled by all-knowing anti-trade demagogues who claim it is the worst deal in history. In fact, it was expertly negotiated and accounts for nearly every possible contingency. Saying this deal is bad without reading it is almost as idiotic as Pelosi’s statement that we needed to pass Obamacare to see what was in it.
The TPP possesses many economic merits. First, it cuts tariff barriers and enhances free-market principles throughout the Asia-Pacific. Second, it imposes more stringent environmental standards upon member-states. This is a boon for the U.S. and the world because it both ensures a greener, cleaner ecosystem and also limits the ability of other states to undercut U.S. manufacturing by imposing less stringent environmental standards. In other words, other states can’t outcompete U.S. manufacturers by simply ignoring the environmental cost of their output. Third, and arguably most importantly, the TPP enhances trade in services, investment, and e-commerce, all areas where the United States has a massive comparative advantage. This means that while the U.S. might be outcompeted in low-wage, low value-added industries, it is easier for American firms to outcompete developing countries in the service sector. In other words, “the agreement appears to have produced meaningful outcomes on both traditional market access and new rules. ”
Of course, there is always a danger that trading partners might exploit loopholes in FTAs. God knows that every Trump supporter is convinced we only make “bad deals” and are constantly being manipulated by enemies and allies alike. This may or may not be true in general, but it certainly is not an accurate picture of the TPP agreement. First and foremost, the TPP has strict regulations on intellectual property rights (IPR) and data privacy. This ensures that developing countries can’t steal American ingenuity and innovation. Moreover, the TPP mandates that developing countries like Vietnam must implement minimum wage laws and allow workers to form unions, thus making it more difficult for those countries to undercut U.S.-based companies with cheap labor. The TPP also balances out its protection of IPR by decreasing the time that companies involved in trading can claim patent protection. Thus, it is no longer possible for one corporation to sit on a patent for over a decade and artificially limit competition. While one can quibble with the exact patent timeframes negotiated in the agreement, it is clear that the TPP strikes a relatively good balance between protecting and rewarding innovation and preventing monopolization.
The TPP also contributes to employment and welfare levels throughout the Asia-Pacific. By increasing market size, more low-skilled workers in countries like Vietnam will have access to relatively lucrative employment opportunities. This will enhance the standard of living throughout the developing regions of Asia. Moreover, most estimates conclude that there will be little job loss in the U.S. because of the long timeframe for implementation. In other words, there will be plenty of time for employees to seek employment in sectors not hurt by foreign competition. Not only will few jobs be lost in the U.S., but the types of jobs people will have access to will be better and higher paying service sector jobs. So, yes, steel workers will suffer from this deal, but the average worker will see more demand for their skills and education level as the U.S. service sector is unfettered and allowed to compete freely with its weaker Asian competition.
The TPP also has a number of important geopolitical implications beyond just its economic gains. Namely, by tying most of the Asia-Pacific to a U.S.-led trade order, the United States will be able to challenge China’s regional economic dominance. America is already the primary regional security guarantor, so by becoming the primary contributor to regional economic growth as well, the United States will possess immense leverage in the region. Obama summed up the situation well when he said that without the TPP “China will write the rules [for Asia].” The geopolitical implications go beyond just China-U.S. relations, however. It also impacts the balance of economic power. After all, Xi Jinping has been aggressive in his pursuit of Chinese economic dominance in Asia. From the AIIB to the One Belt One Road policy, he seeks to crowd out U.S. market dominance. By ratifying the TPP, the U.S. would be the leader of the largest regional free-trade zone in the world, a zone that would account for a significant amount of global GDP. This would grant the U.S. immense market power and economic pull as countries realize that they must either join the U.S.-led trade zone or risk being left out in the cold. The TPP would also change China’s economic calculus. China is facing an impending middle-income trap that risks crashing its economic growth and triggering massive social unrest. Joining the TPP would help ameliorate this economic obstacle, but it would also weaken China’s leverage and power vis-a-vis the U.S. Thus, the TPP would be a form of soft power, encouraging the Chinese to do what we want willingly. To quote Green and Goodman:
Worryingly, global trade has grown more slowly than GDP over the past three years, but a cascading series of agreements over the coming decade that builds from TPP to TTIP, a Free-Trade Area of the Asia–Pacific (FTAAP), and eventually reinvigoration of multilateral negotiations under the WTO would create incentives for Beijing to adhere to regional and global rules and support economic as well as eventual political liberalization in China
We are at an important crossroad when it comes to free trade. Trade agreements are becoming more difficult to negotiate, and the growth of global trade is slowing. Signing the TPP would be a major step forward in expanding the neoliberal economic system that has brought such wealth and prosperity not only to the U.S. but the entire world. The TPP costs U.S. taxpayers almost nothing while granting the U.S. immense amounts of geopolitical and economic leverage. Indeed, the overwhelming burden is on the other 11 countries, and they have already shown a commitment to follow through. It is not asking much of the U.S. to ratify this deal. If we fail to act now, it is possible that we might never see another major multilateral trade deal negotiated until I am well into middle-age. And, even if we do somehow manage to renegotiate the TPP, it is likely that the resulting deal will be a lot less favorable to U.S. interests. As Green and Goodman so eloquently explain, were we to abandon the TPP, “Momentum behind the U.S.-led international order would shift to momentum against it. Future generations of historians will take note of U.S. leadership at this moment.”