Trade outlook foggy with TPP undone
United States participation in the Trans-Pacific Partnership is dead, despite the hopes of supporters such as Rep. Dave Reichert. The trade agreement won’t make it through the lame-duck Congress, and President-elect Trump has promised to kill it.
The 12-nation trade deal was roadkill in a supposedly populist, anti-establishment presidential election. Trump’s Democratic opponent Hillary Clinton opposed it, as did Sen. Bernie Sanders.
Among the complaints were that it was negotiated in secret, favored corporate interests over those of workers and the environment, and would cost American jobs. Also, to Trump, the final text was too complex at more than 5,000 pages.
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That length might actually have proved a good thing: It contained more worker, environmental and anti-protectionist provisions and enforcement mechanisms than any predecessors, making it the high-standard agreement President Obama had championed.
One unknown is the long-term effect here. With strong trade already flowing between Washington state and most TPP signatories, I’ve suspected it would be a modest net positive. It might have been more, especially for Puget Sound technology companies. Remember, the United States runs a trade surplus in services.
But we will never know. Goodbye to all that.
Don’t move on to the wake just yet, though. If Trump keeps one of the few clear, consistent promises of his campaign, he intends to upend the trade status quo. As in, tariffs up to 45 percent on Chinese imports, renegotiating NAFTA amid a slew of insults against Mexicans, and even a threat to withdraw from the World Trade Organization.
Maybe this is “the art of the deal,” a tough opening move in a negotiation. Yet even if that’s true, Trump is talking about upending decades of American trade policy.
It’s doubtful the former reality-television star knows much, if anything, about this. He “doesn’t have time” to read books. He was allowed to elide over the fact that Trump-brand products are made in at least 12 countries, even as he castigated companies for shipping American jobs overseas.
Also, as chief executive, Trump really won’t have time to act as Trade Negotiator in Chief, especially on the granular level every time a plant threatens to close.
Trump’s base, however, will hold him to these promises (and political scientists have found presidential candidates keep about three-quarters of their campaign pledges). Republicans have made a dramatic shift away from supporting trade.
Carrying out Trump’s promises (or threats) risks a trade war with the world’s second-largest economy and Washington state’s largest trading partner. China has warned as much. Beijing, which was never invited to join TPP, is also moving forward with its own version of the agreement. TPP always had as much geostrategic importance — assuring American allies and friendly nations of U.S. commitment — as it did trade value.
Even using such threats as a starting gambit in “deal making” is dangerous, with big potential collateral damage here. According to the Washington Council on International Trade, 40 percent of jobs in the state are linked to trade. Washington is the third largest merchandise exporter among the states.
Interestingly, Texas, Michigan, Florida, Ohio, Louisiana and Pennsylvania were top 10 merchandise export states last year, according to the Census Bureau. All voted for Donald Trump and his leap into the unknown.
How did we get here, toes over the edge into darkness?
After the experience of the Great Depression and the militarism it empowered, both political parties supported a world order based on free trade. Nations that traded with each other were less likely to go to war against each other (important exception: World War I). A Free World trade system was a critical weapon against communism in the Cold War.
Most importantly, trade enhanced American wealth and bolstered the middle class. The United States was the world’s largest manufacturer and exporter. So from the General Agreement on Tariffs and Trade to managed trade deals such as NAFTA and, finally, the World Trade Organization — we built this, and with wide public support.
But by the 1970s, Western Europe and Japan had rebuilt their industrial bases, with South Korea and other Asian “Tigers” not far behind. Exports flooded the United States and began to take away industries we had pioneered, such as consumer electronics. By the 1980s, big job losses hit such bulwarks as automobiles and steel.
It’s true that some sectors became complacent, as David Halberstam detailed about the Big Three in his book, “The Reckoning.” But more insidious forces were also at work. Many American companies made big investments overseas while allowing U.S. plants to become obsolete. This was not lazy union “thugs” to blame, but rather a deliberate corporate deindustrialization policy.
It was partly driven by the new “shareholder rights” movement, which focused on short-term results. Edwards Deming, the legendary management expert who helped Japan turn its economy around, derided the American executive attitude as “turning a fast buck-itis.”
This especially manifested itself in seeking the lowest wages, something made ever more possible by trade agreements in an interconnected world. The net wins and losses from NAFTA are still debated. But millions of well-paid American blue-collar jobs were lost to China and the cumulative effects of jobs offshored to other nations.
But it takes two to trade tango. Americans save little but have an insatiable appetite for cheap goods. The trade status quo responded to that. Yes, some nations “cheat” at trade, but we handsomely subsidize our agricultural exports. And, according to the WTO, break the rules with state tax breaks for Boeing.
The status quo can be unwound: with tariffs, penalties against job offshoring companies, “buy American” requirements. With some wisdom and care, some of these measures might — might — even help.
But wisdom and care are not the watchwords of this new administration.
No major modern nation in history has successfully embraced autarky — radical self-sufficiency — much less the world superpower, the country that built the trade system.
So tell me how this ends?