Trans-Pacific Partnership: Is Trade Good for America?

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Tue May 12, 2015 08:08:09AM | Categories: Free Trade, Labor Unions & Obama Administration

A summit with leaders of the member states of the Trans-Pacific PartnershipBy: Gobierno de Chile

The question, “Is trade good for America?” may seem a little trite to some, but in watching and listening to the heated rhetoric on the Trans-Pacific Partnership Trade Agreement, it is a question that one might ask to gauge how much the public has become so polarized on this issue. While some opponents of trade agreements might answer with a quick “no”, others will recognize the importance of trade, not only to America, but to the world. As long as humans have existed as tribes on this planet they have engaged in trade. Modern trade, however, is much more complicated with products and services covering multiple countries requiring sophisticated trade agreements, which then prompts the question:

Are trade agreements good for America?

This question might get more negative responses, and certainly trade existed for a long time on this planet without trade agreements. However, is it possible to have trade in this modern world without trade agreements to govern that trade? The answer, of course, is no. So if you disagree with all trade agreements, then by definition you are against all trade. You can’t have one without the other, at least not if you are a business wanting to engage in sustained international trade.

So you might say you are not against all trade agreements…just bad trade agreements. So what is a bad trade agreement and what is a good trade agreement? It depends on what you value. From a corporate standpoint, the primary goal is profits. Without a profit motive, the company would have no incentive to set up shop in a foreign country and trade…and no jobs would be created or transferred. From the worker standpoint, it is all about jobs including salaries and benefits. However, jobs created in one country are often seen as job losses in another country. One country’s gain is another country’s loss, or so it appears, but is there such a thing as a win-win trade agreement? The answer is yes, but it requires an honest debate and political will. That prompts the next question:

Should Congress give President Obama Trade Promotion Authority (TPA) or “fast track” as it is known?

To be clear, TPA is not a trade agreement but rather a procedural process that ensures that the President has the authority to negotiate the final terms of the trade agreement following the objectives set by Congress. TPA provides for transparency, oversight and accountability by allowing Congress to extensively review drafts of the ongoing negotiations and consult with the Administration on any issues of concern. When the professionals operating under the President’s direction have reached agreement, the final draft will be voted on by Congress in an up or down vote, but with no amendments allowed. However, with respect to the current proposed TPA legislation, Congress could withdraw the President’s fast track authority and renegotiate terms. If this happens, it could throw the entire agreement negotiated over six years up in the air as other countries will likewise request changes to the agreement. In effect, the TTP will be dead or the eleven other countries will proceed without the United States.

Why all the secrecy of negotiations behind closed doors?

The TTP has been negotiated by professionals knowledgeable in their respective fields, and those professionals have included labor unions and environmentalists as well as corporations. All issues important to the Obama Administration have been pursued, but getting all twelve countries to agree will undoubtedly require compromises, much the same as members of Congress have to compromise when dealing in secret on budget deals. The reason that the general public is not allowed to see the drafts until finalized is simply because they will only look at specific parts of the deal that pertain to their special interests and will not consider the benefits of the whole agreement for America. Certain special interest groups will be able to muster public outrage and campaigns to apply political pressure on members of the negotiating teams. That’s exactly what is happening now with the WikiLeaks drafts made public. No matter how good the agreement may be for America as a whole, any special interest group might have the capacity to effectively scuttle the agreement.

Don’t all these trade agreements result in American lost jobs?

Yes trade agreements in the past have had the effect of shifting the demographics of jobs, and lower paid workers are the most vulnerable to losing their jobs, if not to foreign competition, then to automation. But those “jobs lost” have also been subject to much misinformation and political posturing. The issues are much more complex than what Ed Shultz will have you believe with his daily rant against the TPP and President Obama. I’ll start the thinking with a basic hypothetical example of how a trade agreement works.

Chuck runs an American company that makes “widgets”. His company has $20 million in sales but has never sold his widgets outside of the USA because the trade tariffs and numerous bureaucratic regulations made his products too difficult and costly to sell in Mexico. Across the border, Jose has an equally profitable company with $20 million in sales from selling his “gadgets” in Mexico, but for the same reasons has not been able to expand his business into the USA.

Along comes NAFTA removing all tariffs, quotas, and bureaucratic paperwork for trade between the two countries. Chuck’s company’s sales of widgets rise 30 percent to $26 million because of the new demand in Mexico. Jose’s company does even better with a 40 percent increase to $28 million due to his sales of gadgets in the USA sales.

And with that trade, they both became “multinational companies” in engaging in their first international trade.

So with respect to only these two companies in my hypothetical example, is the trade deal a win-win…a trade deal good for both Chuck’s company and Jose’s company? Many people might say yes, but if you follow the methodology of the Economic Policy Institute it is a bad deal for the American worker because the American trade deficit for these two companies was $2 million, and that $2million, in their view, translates into lost American jobs. Of course, NAFTA is way more complicated, but that, in essence, is the rationale that the EPI follows in condemning NAFTA as a bad trade deal that they calculate has resulted in 700,000 American jobs lost. EPI simply looks at the difference between imports and exports, and any imbalance against America is “American jobs lost”.

I disagree with EPI’s rationale and so do many reputable economists. Yet EPI’s numbers on jobs lost to NAFTA have been picked up by every liberal-progressive organization in pushing the false narrative that all trade deals are bad for American workers. That narrative is fundamental to the liberal-progressive opposition to the Trans-Pacific Partnership. However, please take note, as I pointed out in my prior blog on the TPP, the EPI was set up in 1986 by six liberal economists including Robert Reich. It was fully funded in the first five years of its existence by eight labor unions, and those unions along with several liberal foundations continue to provide a large part of its funding.

I am not anti-EPI. I love the work that they do, and I have referenced their charts and graphs in many of my forum posts. However, in the case of trade agreements, it appears to me at least, that they have been less than professional to sell a point that NAFTA is a disaster, most likely to please their primary benefactors. That charge has a familiar ring to it as we head into the 2016 election. You might disagree with me, and certainly my head was also spinning as I tried to assimilate how all this fits into the big picture.

My liberal – progressives friends cite not only the so called jobs lost due to NAFTA, but also all prior trade agreements, especially those with China, as reasons why the TPP must be opposed. And yes, I absolutely agree that American jobs were lost to China and other countries by prior trade agreements that go back all the way to the Nixon era and his opening up of trade with China, but as President Obama has said, “That horse has left the barn.” Most all of the low paying routine jobs that have been lost to both trade agreements and computerization of routine tasks have already been lost and are not coming back to America, with or without the TPP. That’s why President Obama has put so much emphasis on job retraining programs and education initiatives like free community college.

Why is the TPP any better than past trade agreements?

There are, of course, other issues than jobs that muddy the waters, and President Obama is trying to get these addressed as well in the TPP. As I pointed out in my prior article on the TPP, there have been problems and issues with all trade agreements in the past, and with new trade agreement we learn from the mistakes of the past and work to improve and correct them. To paraphrase Obama, none of these issues are “easy”. If they were easy we wouldn’t have taken years and years to get where we are today. To make progress it takes the two parties to work together to seek solutions…and compromise. Often times those compromises are the phasing in of terms over many years, in the case of NAFTA 15 years.

With regard to the TPP member countries, America already has trade agreements in place with all eleven of the countries that are negotiating with us. The Asia-Pacific area has the potential for enormous growth over the next decade and longer, and the United States cannot afford to not be a part of that trade. From the United States Trade Representative website:

“As a group, the TPP countries are the largest goods and services export market of the United States. U.S. goods exports to TPP countries totaled $698 billion in 2013, representing 44 percent of total U.S. goods exports. U.S. exports of agricultural products to TPP countries totaled $58.8 billion in 2013, 85 percent of total U.S. agricultural exports. U.S. private services exports totaled $172 billion in 2012 (latest data available), 27 percent of total U.S. private services exports to the world. America’s small- and medium-sized enterprises alone exported $247 billion to the Asia-Pacific in 2011 (latest data available).”

Those prior trade deals, negotiated at a time when the world economy was different, have problems and issues that need to be resolved. The really difficult country is Vietnam because of America’s history in the country. Just to remind everyone, the United States killed some 1.7 million of their citizens (World Health Survey) as we dropped some 7.8 million tons of munitions over the impoverished nation, more than what was unleashed in World War II on Germany and Japan combined. An estimated 800,000 tons failed to detonate, contaminating around 20 percent of its land. These unexploded ordinances are still killing Vietnamese children today.

In addition, the American military sprayed 19 million gallons of Agent Orange herbicide over 4.5 million acres of Vietnamese forests and croplands, an area the size of Massachusetts. That herbicide remains today in certain urban hotspots and has seeped into the soils and watershed in the forested areas and croplands inflicting serious health issues on the local population including tumors, miscarriages, birth defects, rashes, psychological symptoms and cancer. After we fled Vietnam in 1975, we then imposed a trade embargo on the country that lasted another 20 years, further crippling their effort to recover from the ravages of war inflicted on them by the United States.

So yes, negotiating a trade agreement with Vietnam is difficult, and for America at least, none of that Vietnam era stuff seems to matter. Nevertheless, after five years of difficult negotiations under President Clinton, the United States Vietnam Bilateral Trade Agreement was finally signed into law on December 10, 2001 by President Bush, but once brought into practice, several problem areas arose that that are being addressed in bilateral talks and the Trans Pacific Partnership negotiations. I won’t go into them, but the US Trade Representative has summarized them in its six page Vietnam Trade Summary. Because of these issues, Vietnam is also the country most often cited by opponents of the TPP. They are all there in black and white except one. Conspicuous by its absence is any mention of the ongoing Agent Orange problem, probably because of the political sensitivity of that issue to the United States and the immense monetary cost if the USA admits responsibility.

All of our major trading partners have problems with inequality. In my working career, I have lived and traveled in many of these countries seeing first-hand the so called “shanty towns” where the people at the bottom of the income scale live. They need jobs to provide for just the basic necessities in life, and trade opens up those opportunities. In trade negotiations it’s a Catch 22. A country like Vietnam needs trade to lift its people out of poverty, in large part due to the ravages of war, but if we insist first that they raise their environmental and worker standards as a precondition of trade, then it puts nearly impossible demands on them to ever lift themselves up. Do we even care?

I appreciate Ed Schultz’s support for unions. He often has union heads on his programs to discuss the issues confronting American workers. I also appreciate his “flip flop” on the Keystone Pipeline issue going against the union position after he went to Nebraska and talked to the people potentially affected. Ed needs to go to Vietnam and talk to the people there to get a more balanced perspective on the trade problem. Finally I’ll close with an extract from an April 2015 McKinsey and Company article, Four Global Forces Breaking All the Trends:

“Yet, for all the ingenuity, inventiveness, and imagination of the human race, we tend to be slow to adapt to change. There is a powerful human tendency to want the future to look much like the recent past. On these shoals, huge corporate vessels have repeatedly foundered. Revisiting our assumptions about the world we live in—and doing nothing—will leave many of us highly vulnerable. Gaining a clear-eyed perspective on how to negotiate the changing landscape will help us prepare to succeed.”

Negotiating the TPP has been an enormous challenge for the Obama Administration, even more difficult than the Affordable Care Act. It would be unfortunate if the agreement was killed by those who want to live in the past. The alternative to the TPP is living with all the problems of the past negotiated in good faith at the time, but now sorely in need of update as we meet the challenges of the 21st Century. The status quo is not sustainable. No deal is a bad deal.

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1186 days ago
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I'm conflicted on this. Many well respected economists don't seem to think it is going to be a good idea and there are a lot of red flags. Sadly, the secrecy behind the deal prevents me from making an informed decision about it. There is obviously a trade problem that needs to be fixed, but no action is better than bad action. I just wish I knew more about the TPP