Why you should care about the TPP trade deal
Why debate about the Trans-Pacific Partnership will continue to be a hot issue. Brent Snavely, Detroit Free PRess
Heated rhetoric over U.S. trade policy this campaign season has made the proposed Trans-Pacific Partnership a toxic issue for Democrats and Republicans, delaying action in Congress.
But sooner or later, lawmakers must decide how to deal with it.
Countries that are part of the 12-country pact agreed in February to a two-year ratification period. Several of those nations, including New Zealand and Australia, are urging Congress to ratify the agreement during its lame duck session after the Nov. 8 election.
Whether TPP is good or bad largely depends on what you do for a living. Supporters say it would open up Southeast Asia to U.S. companies, especially for banking, finance and other high-tech industries. Opponents say the deal, like the North America Free Trade Agreement, will lead to manufacturing job losses.
For President Barack Obama, TPP is a triumph of several years of international negotiations. Obama believes deeply in the benefits of TPP, putting him at odds with labor unions. He still hopes to push TPP through Congress before he leaves office.
Historically, Republicans are more likely to support free-trade deals, with Democrats usually opposed. But this year, the politics of free trade have been turned upside down with Republican nominee Donald Trump vehemently opposing TPP and Clinton’s nuanced position of opposition to the final agreement following prior support.
So what exactly is TPP? And would TPP really be bad for American workers and the U.S. economy?
What is TPP?
TPP is a trade agreement spanning 30 chapters and more than 5,000 pages. It involves 12 countries: the U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.
The agreement would create stronger economic ties among the member nations, cut tariffs and foster trade to boost economic growth. The countries that signed onto TPP represent nearly 40% of the value of goods and services produced globally, according to the federal government.
To be approved, at least six countries or a group that accounts for 85% of the combined gross domestic production of the 12 countries must approve the deal.
Supporters say TPP would remove foreign tariffs (taxes) and other trade barriers and set strong and enforceable rules for free and fair trade as well as rules governing e-commerce.
“These are rules that we already adhere to,” said Douglas Irwin, a Dartmouth College economist who specializes in trade policy. “It’s getting other countries to adhere to them as well.”
Critics say the rules favor global corporations, giving them them new rights and the ability to sue the U.S. government.
What are the main arguments for TPP?
•TPP puts the U.S. on offense. The U.S. played a leading role in the negotiations and drafted many of the provisions in ways that benefit America.
TPP sets up export opportunities for U.S. companies in service industries such as banking, finance, legal and technology.
While TPP might hurt U.S. manufacturing, it will benefit workers in service industries that employ about 65% of Americans. In fact, the agreement eliminates more than 18,000 taxes that various countries put on Made in America products, according to the Office of the U.S. Trade Representative.
“What the document really does is it sets up export opportunities in a lot of cutting-edge industries that employ the bulk of U.S. workers,” said Marc Busch, a professor of international business at Georgetown University who served as an adviser to Marco Rubio’s presidential campaign.
Irwin said TPP would eliminate trade barriers to agriculture exports to Japan and Vietnam.
“We already have free-trade agreements with a lot of those counties. So that just means the trade impact is not going to be very big. Where it is big is with Japan and Vietnam,” Irwin said. “What TPP does is bring those barriers down.”
•Rejecting TPP only delays the inevitable and puts the U.S. at a disadvantage. Without TPP, the U.S. would just be one of the nations that are part of the World Trade Organization. The U.S. joined the WTO in 1995 along with 163 other nations. The WTO also establishes trade rules, but they are more basic than TPP and are designed to provide a level playing field.
“We don’t revert to (self sufficiency) if, for example, we don’t sign TPP. We revert to our existing relations under the World Trade Organization,” Busch said. “If the United States is viewed as not being open for business on these trade deals, then … America would fall behind.”
Globalization, supporters say, cannot be reversed or stopped. The sooner the U.S. gets ahead of other nations the better off our economy will be. More broadly, if America rejects TPP and turns inward, experts say some corporations will move their headquarters and factories to more trade-friendly countries.
“High-standard trade agreements like TPP are actually one of the only tools we have to shape globalization in a way that reflects our values and levels the playing field for our workers, farmers and businesses,” U.S. Trade Representative Michael Froman said in an op-ed on Oct. 18.
•You don’t want to be playing defense against China. Next to the U.S., China is the world’s second largest economy. The sooner the U.S. secures closer economic ties to countries in the Asia Pacific region the better. If we wait, we will simply be giving China more time to get ahead.
China is trying to put together its own mega-regional trade agreement, the Regional Comprehensive Economic Partnership or RCEP. RCEP covers 16 countries, from India to Japan.
“By passing TPP, Congress would ensure U.S. leadership in making the global economy work for all Americans,” Froman said. “By failing to act this year, Congress would undermine U.S. leadership and cede the role of establishing the rules for global trade to China.”
•Even Canada would take advantage of a TPP rejection. Canadian Prime Minster Justin Trudeau has made trips to Mexico and China this year. On the trips, Trudeau said Canada is open to expanding its trade relationships.
Trudeau also faces public opposition to TPP in Canada. Still, he’s a popular prime minister who has thrown his support emphatically behind TPP.
“It’s not just about cooperation and the economy; we’re here to deepen our friendship,” Trudeau said in June when he welcomed the Mexican president in Toronto, according to the Canadian Press.
On Sunday, Trudeau flew to Brussels to sign a free-trade agreement with 28 European nations. That deal, called the Comprehensive Economic and Trade Agreement, or CETA, is similar to TPP. And, like TPP, it still must be approved by each nation.
•Those who dislike NAFTA should like TPP. Want to improve the North American Free Trade Agreement? Pass TPP. Canada and Mexico are among the nations that would be part of TPP. That means TPP would effectively replace NAFTA. And, as noted above, TPP is a far more robust and detailed trade agreement than NAFTA.
A study conducted by the United States International Trade Commission for Congress concluded TPP would lead to higher wages in the U.S.
“TPP actually strengthens labor agreements and environmental agreements. And they are just as enforceable as any other part of the agreement,” Obama said in August when he was in Singapore. “I have not yet heard anybody make an argument that the existing trading rules are better for issues like labor rights and environmental rights than they would be if we got TPP passed.”
What are the main arguments against?
•More manufacturing job losses. Like with NAFTA, labor unions and others argue that TPP would accelerate the decline of U.S. manufacturing and therefore hurt the U.S. economy and regular American workers.
“The president (Obama) and I have been friends since about 1994, and we have a total disagreement on this,” UAW President Dennis Williams said in September. “This is a flawed trade agreement.”
TPP might benefit corporations in certain sectors of the economy but those corporate profits are unlikely to trickle down to workers.
“U.S. corporations took advantage of NAFTA’s extraordinary investor protections, trade liberalization and low wages in Mexico to outsource U.S. jobs. The TPP includes many of the same investor protections as NAFTA,” Josh Nassar, legislative director for the UAW, said in January at a policy event in Washington, D.C.
•Depressed wages. Globalization in general, including NAFTA and trade with China, has already put downward pressure on working-class wages, forcing U.S. workers to compete with lower wages earned by workers in Mexico and elsewhere. Critics of TPP say competing with countries like Vietnam and Malaysia will just accelerate U.S. job losses.
Working-class U.S. residents already lose about $1,800 annually because wages have been depressed by global competition on labor rates, according to the left-leaning Economic Policy Institute. TPP would deepen this problem.
“It’s a race to the bottom on wages,” said Robert E. Scott, senior economist for the Economic Policy Institute. “And that’s really the biggest effect of trade.”
•Country of origin for automotive production. Under NAFTA, 62.5% of a car and its parts must be made in a country to qualify for tariff concessions. Under TPP, only 45% of the vehicle or vehicle content must be made in the country to qualify for the concessions.
“We are disappointed with the auto rules of origin and fear they will create more incentives for companies to move operations to low-wage countries,” Nassar said in his testimony. “Over half of the value of a car or truck could be built by countries that are not in the agreement, and so those countries would receive the benefits of the TPP.”
•Currency manipulation. Critics say TPP lacks enforceable currency manipulation rules. At least three countries that are part of TPP — Japan, Malaysia and Singapore — are frequently named as known currency manipulators.
Currency manipulation occurs when a country’s central bank buys a lot of foreign currency, usually dollars, to lower the value of its own currency while simultaneously driving up the value of the other country’s currency. This artificially lowers the cost of goods produced in that country and boosts export demand.
The lack of currency manipulation rules irks high-level executives in the automotive and steel industries. Ford says it supports free trade but opposes TPP in its current form and has been urging the administration to renegotiate it so that it includes “strong, enforceable rules on currency manipulation.”
“This would change the game and make sure all TPP countries play by the same set of rules,” Stephen Biegun, Ford’s vice president of international government affairs, said in January when he testified before a U.S. House committee.
•China is already involved. Opponents say it is naive to think that the U.S. can get ahead of China on trade deals with the countries in the Asia Pacific. China has already been trading with these nations for many years, is geographically and culturally closer, and will continue to foster closer trading ties whether the U.S. adopts TPP or not.
“That horse is out of the barn. China is the biggest trading partner with all of the TPP trading partners,” Scott said. “This deal is not going to change that … These countries have economies that are very tightly integrated with China already.”