Free trade yes, TPP maybe

There were two key votes in the Senate last week on a bill to provide the administration with “fast track” authority to negotiate a Trans Pacific Partnership (TPP) and other international trade agreements. We’re referring to the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (S. 995, H.R. 1890), aka Trade Promotion Authority (TPA) legislation.

TPA is perhaps the only presidential proposal of consequence that stands a chance of passage in this session of Congress, and the administration is going all out to support it. Obama’s Pacific trade push faces a Senate vote this week, Julie H. Davis & Jonathan Weisman, New York Times,
5/10/15.

President Obama’s most aggressive and sustained legislative push since the Affordable Care Act faces a crucial first test this week when a divided Senate considers a bill that would grant him accelerated power to complete a massive trade accord with 11 nations across the Pacific Rim. But after lobbying members of Congress in a campaign that has included rides on Air Force One, meetings in the West Wing, private vows of political support and public attacks on critics in his own party, Mr. Obama’s top legislative priority remains at risk.

Last Tuesday, however, every Democratic Senator save Tom Carper of Delaware voted against floor debate of the TPA. A motion to invoke cloture therefore fell well short of the 60 votes required. Senate Democrats block action on Obama’s trade agenda, Charles Babington, yahoo.com,
5/12/15.

The next day - following a meeting of about a dozen Democratic senators with the president at the White House and a procedural tweak by Senate Majority Leader Mitch McConnell (more on this later) – a deal to break the impasse was announced. The TPA appeared to be headed for passage in the Senate (after debate and the offering of amendments), with the real test to come in the House. Obama trade bill revived after bipartisan deal sets new votes, Stephen Dinan, Washington Times,
5/13/15.

How odd to see Senate Democrats resisting a key bill of the president, if only briefly, while Senate Republicans supported its passage. Just what is this Trans Pacific Partnership about, why are the usual political fault lines scrambled, and how does the TPP measure up from a policy standpoint? Our thoughts follow.

I. TPP concept - In principle, agreements that reduce barriers to international trade are a win-win proposition. Some businesses may suffer due to increased imports from offshore competitors (even as consumers enjoy paying lower prices), but other businesses will benefit from increased export opportunities. The overall economic effects should be positive for all of the participating countries.

In the years after World War II, international trade negotiations were conducted on a global basis through the World Trade Organization. The primary goal initially was lowering tariffs on imported goods, but as tariff levels were reduced the emphasis shifted to other issues (e.g., eliminating nontariff barriers to trade, leveling the playing field for international vs. locally-based service providers, and protecting intellectual property rights).

The WTO approach came to be seen as ineffective for negotiating “high-standard” trade deals – too many countries involved, in all stages of economic development, making it increasingly difficult to achieve consensus. Bilateral and multilateral trade agreements are now in vogue, which can arguably provide gains for the countries concerned without disrupting the benefits of previous WTO agreements.

Negotiations for a Trans Pacific Partnership (TPP) began about a decade ago. The talks were initially among Singapore, Chile, New Zealand & Brunei. Eight more Pacific Rim countries (Australia, Canada, Japan, Malaysia, Mexico, Peru, United States & Vietnam) are now involved, with the US taking the lead since 2009. Collectively, the TPP countries account for about 40% of the world’s GDP. Everything you need to know about the Trans Pacific Partnership, Lydia DePillis, Washington Post,
12/11/13.

The president has criticized previous trade agreements, especially the North American Free Trade Area (Canada, Mexico & the US) put in place under President Bill Clinton, which he accused Hillary Clinton of supporting during the Democratic primary in 2008. More recently, some critics have referenced President Obama’s earlier comments and suggested that the TPP would be “NAFTA on steroids.”

The response is that the TPP would be negotiated in such a way as to avoid previous mistakes and correct some NAFTA deficiencies, e.g., by requiring TPP participants (including Canada and Mexico) to observe higher standards for the general good. Specter of NAFTA haunts Obama’s trade dreams, Eric Bradner, politico.com,
2/19/14.

Before meeting with Mexican President Pena Nieto on Wednesday, Obama touted the pan-Pacific deal as an “opportunity to open up new markets in the fastest, most populous region of the world – the Asia Pacific region.” What’s more, it’s a chance to carry out Obama’s 2008 campaign pledge to renegotiate NAFTA, adding labor rights and environmental protections to its mix of provisions. In fact, the Pacific deal’s higher standards would effectively replace NAFTA.

A that was then, this is now theme was sounded in the president’s recent speech at Nike’s headquarters (Beaverton, Oregon). Transcript,
5/8/15.

So the Trans-Pacific Partnership that we’re working on, it’s the biggest trade deal that we're working on right now -- has to do with the Asia Pacific region. And it reflects our values in ways that, frankly, some previous trade agreements did not. It’s the highest-standard, most progressive trade deal in history. It’s got strong, enforceable provisions for workers, preventing things like child labor. It’s got strong, enforceable provisions on the environment, helping us to do things that haven’t been done before, to prevent wildlife trafficking, or deforestation, or dealing with our oceans. And these are enforceable in the agreement. *** [Thus, Vietnam] would have to pass safe workplace laws to protect its workers. It would even have to protect workers’ freedom to form unions -- for the very first time. That would make a difference. That helps to level the playing field -- (applause) -- and it would be good for the workers in Vietnam, even as it helps make sure that they’re not undercutting competition here in the United States.

Another argument is that the TPP harmonizes with the “pivot to Asia” strategy the president has articulated. As we understand it, his envisioned legacy would be to end the wars in Iraq and Afghanistan, bring the US ground forces home, reposition some US military assets to the Asia-Pacific region to reassure US allies concerned about Chinese intentions, and enter into a trade pact that would not only provide economic benefits for all of the participating countries but also upgrade the way business is done throughout the region instead of allowing China to set the rules. See, e.g., remarks by the vice president on Asia-Pacific Policy, George Washington University, Washington, DC,
7/19/13.

The TPP has potential to set new standards for collective commitments to fair competition -- on state-owned enterprises, fair competition on investments, labor, the environment, open markets for automobiles and other industries. And we firmly believe this will create a strong incentive for other nations to raise their standards, as well, so that they can join. We’ve already had discussions with some of those very nations both in the Americas as well as in the Pacific.

The president's milestones may prove easier said than done, more about that later, but one could hardly accuse him of low aspirations.

II. Implementation -Trade agreements are unpopular with many liberals (aka progressives), who tend to focus on job losses in some sectors of the economy (never mind that consumers will enjoy paying lower prices) rather than overall economic impact. If liberals lack the votes to stop a proposed trade agreement, they will seek concessions (require trading partners to observe prescribed standards, provide benefits for displaced US workers, etc.) for going along with it.

Centrist elements of the Democratic Party have traditionally supported participation by the US in international matters, including trade agreements, proactive diplomacy and where necessary military engagement. Such support has waned since the 1960s, however, as the party’s balance moved to the left. Witness the appalling complacency about international issues that was on display at the Democratic National Convention in 2012, and if anything was said about the TPP we don’t remember it. Convention slogans express what will be at stake in November,
9/10/12.

Internationally, the president was credited with bringing the troops home from Iraq, giving the “gutsy” order to kill Osama Bin Laden, and charting a path that would soon end the war in Afghanistan. *** There was very little said about new international challenges, such as uncertain intentions of the Islamist regime in Egypt, a deadly civil war in Syria, instability in Iraq after a hasty US exit, deteriorating conditions in Afghanistan, or Iran’s nuclear ambitions. *** Unlike his opponent who was promising money for military hardware “our Joint Chiefs don’t even want,” said the president, he would use “money we're no longer spending on war to pay down our debt and put more people back to work rebuilding roads and bridges and schools and runways.”

Just as the Democratic Party has moved left, the Republican Party has apparently moved right. Some GOP factions are not keen on trade agreements and/or are disinclined to grant broad authority for the current president to do anything. For them, the TPP seems like a “bad deal,” plain and simple. Obama’s job-killing, gun controlling, illegal alien enticing secret treaty could be fast tracked this week, Tim Brown, freedomoutpost.com,
5/11/15.

In this vein, consider the following report. US Senate votes to advance Obama’s secret bill hardly anyone has read, americanactionnews.com, 5/14/15.

The Senate voted to advance President Obama's Trade Promotion Authority bill this afternoon by a vote of 65 - 33. The Problem? Hardly anyone, including those voting on it, has read the bill. The text of this piece of legislation is held under lock and key in the basement of the US Capitol. The only people who can see it are members of Congress and some of their staff. If a legislator makes his or her way to the depths of the Capitol to view the bill text they have to hand over their cell phone upon entering. After they are done reading, any notes they take must be handed over prior to exiting the room.

Nonsense! The Senate voted 65-33 to proceed with debate of TPA on May 14, but the text had been readily available since mid-April. [Sen. Oren] Hatch, [Sen. Ron] Wyden and [Rep. Paul] Ryan introduce Trade Promotion Authority legislation, press release,
4/16/15.

The security provisions that are described apply to drafts of TPP text, which will not be published until the countries involved reach agreement on the entire treaty, not the bill being voted on by Congress.

Despite widespread opposition, all is not lost for TPA because the traditional wing of the Republican Party typically favors trade agreements based on benefits for exporters. If the GOP leadership can keep enough House conservatives in line and the president wins support from some reluctant Democrats, the bill should stand a decent chance of passage. Save Obama (on trade), Charles Krauthammer, Washington Post, 5/14/15.

The Democrats, inventors of the postwar free-trade regime, have now turned against it (and their own president). This is the Republicans’ chance to demonstrate that they can think large by advancing an important strategic objective — giving substance to Obama’s as yet stillborn “pivot to Asia.”

One point to watch is what happens to a provision that figured in the short-lived revolt of Senate Democrats last week. Senate crackdown on China currency manipulation complicates Obama trade deal, Stephen Dinan, Washington Times,
5/14/15.

Even though China is not involved in the TPP negotiations, some Democrats wanted to link their votes for TPA to a provision for retaliation against China for currency manipulation that could artificially boost Chinese exports and/or reduce Chinese imports. This provision was included in a customs enforcement bill (CEB).

It was proposed to meld the CEB into the TPA, but Republicans balked. After the setback for TPA related previously, however, Senate Majority Leader Mitch McConnell promised a vote on the CEB before TPA was taken up again. The Senate passed the CEB by a wide margin (78-20), and the currency manipulation provision may ultimately have to be accepted – despite the uncertainty that it could create, as “currency manipulation” is a rather subjective concept – in order to win House approval of TPA.

Re the TPP, the treaty provisions are not generally known and therefore cannot be evaluated. At such time as negotiations are completed and the text is published, members of Congress will vote on an up or down basis (no amendments or filibusters, simple majority). Unless some of the warnings about a scheme to promote sinister policies panned out, approval of the deal would be likely. Save Obama (on trade), op cit.,
5/14/15.

III. Assessment - Notwithstanding our disposition to trust in free markets, arguments can certainly be made that the potential US benefits from trade agreements are illusory.

Consider how US manufacturing employment has dropped in recent decades – not just as a percentage of the working age population (now 40% of the 1973 level) but also as a reduction in the number of manufacturing jobs (down 37% since 1979).

As for arguments that advanced economies stay ahead of the curve by shifting from traditional to cutting edge manufacturing and services businesses, note that the median income per US worker has fallen on an inflation-adjusted basis. 7,231,000 lost jobs, Terrence Jeffrey, cnsnews.com,
5/12/15.

In fact, according to the Census Bureau (Tables H-13 and H-14), the real median household income of an American householder who has completed four years of high school peaked in 1973 at $56,395 in constant 2013 dollars. By 2013, it was down to $40,701. That is a drop of $15,694--or 27.8 percent.

Hmm, are China and other developing countries forging ahead at the expense of the US economy, which is being hollowed out as key economic functions are attracted to other countries by cheap wages, lower environmental standards, etc.? (Theory A) Or is this country undermining the vitality of its private sector with unwise welfare programs & business subsidies, excessive business taxes, and a morass of government regulations? (Theory B)

Not only is there lots of evidence to support Theory B, in our opinion, but also it may be more practicable to change counterproductive US policies than to retaliate against other countries for perceived sharp practices.

As for abstaining from the negotiation of trade agreements like the TPP, other countries will continue to enter into them and the US could wind up becoming increasingly isolated from the global economy. Not a good idea! Save Obama (on trade),Charles Krauthammer,
5/14/15.

In our deadly serious competition with China for influence in the region, the TPP would anchor our relations with Pacific Rim nations. If we walk away, they will inevitably gravitate to China’s orbit. The question is (as Paul Ryan and Ted Cruz succinctly put it in the Wall Street Journal): Who is going to write the rules for the global economy — America or China?

Subject to seeing what is in it, if and when the text is published, our inclination would be to support the TPP as a constructive effort. But that being said, we do have some reservations about the case that has been made for it.

First, the “pivot to Asia” strategy seems dubious (if not vainglorious) for several reasons.

•Given all the problems in the Middle East, this is hardly the time to walk away and let Iran and its proxies take over – as the president seems intent on doing.

•Defense budget cutbacks are stretching US military capabilities, calling into question whether the “pivot to Asia” adjustments that were envisioned can be supported. Inside the ring: Pentagon reevaluating Obama’s pivot to Asia, Bill Gertz, Washington Times,
3/5/14.

“Right now, the pivot is being looked at again because, candidly, it can’t happen,” Katrina McFarland, assistant defense secretary for acquisition, said at a defense conference Tuesday. The comments appeared to undermine one of the Obama administration’s most important foreign and defense policies: the pivot, or rebalance, to the Asia-Pacific region after the military withdrawals from Iraq and Afghanistan.

Second, we’re not entirely comfortable with the idea of a TPP that excludes China from participation – and could be perceived as being aimed against that country. If there is any effective strategy for steering the US/China relationship in a constructive, vs. potentially destructive, direction, it is the expansion of international trade for the mutual benefit of all concerned.

Perhaps it is sufficient to rely on separate consultations with China on economic issues for the time being, and we understand that there has been a lot of such activity. Remarks by the vice president,
7/19/13.

We launched negotiations on a new Trans-Pacific Partnership that will connect diverse -- economies as diverse as Singapore and Peru. We’ve [also] worked toward a more constructive economic relationship with China, including through the Strategic and Economic Dialogue. And I opened the fifth round of that dialogue just last week.

But if the idea is China would be invited to join the TPP after agreeing to be bound by all the rules negotiated by other countries, that might not go over too well.

Adding retaliation for currency manipulation to the mix might further offend Chinese sensibilities. If the issue needs to be addressed at all, it might be best taken up with China on a one-on-one basis.
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