Free trade under US election-year attack

By Andrew Hammond

Senator Bernie Sanders called on Saturday for the Democratic Party to abandon efforts to pass the Trans-Pacific Partnership (TPP) trade deal in Congress. His move follows a set-piece economic speech by Hillary Clinton on Thursday in which she re-emphasised her opposition to TPP, underlining growing global concerns about the prospect that after seven decades of Washington being at the forefront of efforts to liberalise the international economy, political backlash is killing off support for free trade.

In the face of these worries, the Obama administration will continue this week its August blitz to boost support within the United States for the 12 country TPP deal. At least 30 events are planned by the end of the month in a major mobilisation effort to build popular and congressional assent for the landmark trade and investment deal which is the biggest regional free trade agreement in history, and the largest trade deal struck since the 1994 completion of the Uruguay Round which created the World Trade Organisation.

A reason for the big push, which moves in September to Capitol Hill, is the potential hammer blow to US prestige and leadership if TPP fails, and also the prospect that the Transatlantic Trade and Investment Partnership deal with Europe could follow the same path. Aside from the opposition to TPP of both Democratic and Republican presidential nominees, Clinton and Donald Trump respectively, US House Speaker Paul Ryan ― who is a TPP advocate ― said last week that “we don’t have the votes” in Congress for the bill to be brought up to Congress before the end of Obama’s presidency, even in the ‘lame duck’ session after November’s elections.

TPP is strategically important for the administration not just because the 12 countries — the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam — encompass around 40% of world GDP. In addition, it has an important rules-setting component and President Barack Obama has asserted that the treaty will enable Washington, rather than Beijing, to create the foundation stone for “twenty first century trade rules”, including standards on trade, investment, data flows and intellectual property.

As Obama has noted, “when more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment”.

The precise overall economic impact of the proposed deal is hard to forecast with precision. However, the Petersen Institute for International Economics has indicated that it will provide an approximately 300 billion dollar boost to the dozen TPP countries (which might expand over time to include other countries, including China) by 2025.

Yet, TPP is a very controversial agreement with many domestic constituencies, including labour organisations in the United States itself, who are concerned about the impact upon wages and jobs for ‘blue-collar’ workers in the country of the free trade deal. Congressional lawmakers have also expressed concerns about the nature of TPP deal, which would phase out a vast swathe of import tariffs and nontariff barriers to trade, including the Republican Chairman of the Senate Finance Committee Orrin Hatch.

The fact that normally pro-free trade Republicans are questioning the deal so intently underlines why congressional passage is so uncertain, despite the fact that it last year passed so-called Trade Promotion Authority (TPA) which enables the White House to negotiate deals without significant congressional interference after negotiations are complete. This means that while the US House of Representatives and Senate still must approve or reject final agreements in straight ‘up or down’ votes, it cannot amend them.

Although some US free trade agreements have been passed without TPA, these included relatively small deals, such as a free trade agreement with Jordan. Given the complexity of TPP, TPA renewal was widely seen as essential for any final agreement amongst the 12 countries as Washington’s partners in the venture do not want to see hard fought items negotiated over the last few years potentially unravelled by the US federal legislature.

While much of the congressional discontent with TPP centres around the economic impact of TPP, it is being promoted by the Obama administration to also embed US influence in the strategically important Asia-Pacific region. For instance, the treaty will have a significant rule-setting component, perhaps more so than any other previous trade deal, in multiple areas including limiting subsidies to state-owned companies which could become very important were China eventually to join TPP.

More broadly, there is also a significant geopolitical component to TPP inasmuch as it will help reorient and lock-in US international policy toward the Asia-Pacific region and other strategic high-growth markets. In this sense, Obama believes it would be a multiple major win for his administration as he seeks to define his presidential legacy with only half a year before his tenure in the White House formally comes to an end in January.

The White House recognises that passage of TPP will serve the goal of re-assuring Asia-Pacific allies about enduring US security and political, not just economic, commitments to them. And, in turn, the new free trade agreement will send a clear message to others, especially China, about US intent to continue to place greater strategic emphasis on the region, despite deep continued involvement in other regions of the world, including the Middle East.

Taken overall, the uncertainty over the fate of the TPP treaty is growing. A breakthrough remains possible that will help Obama define his White House legacy and also shape the contours of the twenty first century global economy. However, the prospects are increasing of the deal failing to secure congressional ratification which will damage US prestige and leadership in Asia-Pacific.

Andrew Hammond is an associate at LSE IDEAS (the Centre for International Affairs, Diplomacy and Strategy) at the London School of Economics.

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