Democrats at the party's national convention in Philadelphia this week are riled up about something called the TPP, short for the Trans-Pacific Partnership. The bureaucratic title aside, this agreement would have major consequences in some developing countries and has become a potent rallying cry in the U.S. presidential campaign.
In Philadelphia on Monday, delegates chanted "No TPP!" and brandished signs declaring their opposition. They were frustrated that the party's official platform did not explicitly reject the Trans-Pacific Partnership -- a reflection of the fierce disagreement among Democrats about the deal's merits.
Hillary Clinton opposes the accord, even though she helped negotiate it as President Obama's secretary of state. Her former boss still supports it, though, as does her running mate, Sen. Timothy M. Kaine (D-Va.).
The trade agreement has also divided the Republican Party. Donald Trump is a vocal opponent, but his running mate, Indiana Gov. Mike Pence, supports the deal. So do House Speaker Paul D. Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.).
Here are answers to a few questions readers might be asking about the TPP:
- 1. What is the Trans-Pacific Partnership?
- 2. What effect would the Trans-Pacific Partnership have on the economy?
- 3. What is free trade?
- 4. Why are people so upset about the Trans-Pacific Partnership?
- 5. Why do some people like the Trans-Pacific Partnership?
The Trans-Pacific Partnership is a trade deal that the Obama administration negotiated with 11 other countries in at border the Pacific: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. If ratified, the agreement would set common rules in these countries for labor, the environment and intellectual property. The deal would also reduce the tariffs that buyers must pay on imported goods. (Such tariffs give an advantage to domestic manufacturers.)
More than that, though, the Trans-Pacific Partnership has become a litmus test for American politicians. Opponents of the Trans-Pacific Partnership see themselves as putting American interests and American workers first. They see supporters as out-of-touch technocrats with no sense of responsibility for the lives of ordinary people. Supporters, for their part, view the deal's detractors as misguided populists who are woefully uninformed about the advantages of international trade.
The deal must be ratified by Congress and the governments of the 11 other nations before it goes into effect. At this point, it is unclear whether Congress will approve. McConnell said recently that, given the committed opposition to the deal, it would be difficult for lawmakers to approve it this year, and that they would probably prefer to leave the decision up to the next Congress and the next president.
If so, the fact that both presidential candidates have said they oppose the deal suggests that ratification is unlikely.
Free trade refers to people's ability to buy and sell goods and services across national borders without having to pay excessive tariffs or comply with onerous regulations, which national governments often impose in order to protect workers and manufacturers in their own countries from international competition.
For centuries, advocating for free trade has been economists' bread and butter. They argue that even if manufacturers in one country lose business to foreign competitors, the competition reduces the price of the goods, which puts consumers ahead. Further, economists often say that policymakers who are promoting free trade should find ways of redistributing some of the winners' gains to the losers in order to make everyone better off, whether through taxation or other public programs.
Whether or not the Trans-Pacific Partnership qualifies as a free-trade agreement is hotly disputed. On the one hand, the agreement would reduce tariffs. On the other hand, much of the text of the accord is concerned with regulations for certain industries, such as exclusive patents for pharmaceutical companies and penalties for textile mills that do not purchase their yarn from countries participating in the agreement. These provisions appear to be less about promoting free trade and more about enforcing the same rules across the Pacific.
Beyond any specific provisions, however, the debate over the Trans-Pacific Partnership has become a referendum on free trade in general. Opponents feel that U.S. policymakers' efforts to promote trade over the past several decades have added up to little more than reduced wages for many American workers.
Increasingly, this public skepticism about free trade is supported by new evidence about the costs of globalization. Economists still argue that trade is beneficial on the whole, but increasingly, some of them are concerned about the costs for those workers who are harmed. A recent study found that since President Clinton and Republicans in Congress decided to expand trade with China in 2000, the costs of competition in reduced employment and wages have been more acute, more persistent and more concentrated in specific parts of the country than was previously recognized. What's more, expanded trade with China pushed both Democrats and Republicans further toward political extremes, the researchers have found.
What about helping people in poorer countries get ahead? Economists such as Harvard University's Dani Rodrik have argued that free trade isn't always the right prescription for poor countries, and that countries that have developed successfully have used a combination of free-trade policies along with tariffs and subsidies to promote domestic industry.
Most estimates suggest that the actual economic effects of the Trans-Pacific Partnership in the United States are likely to be minimal. The World Bank, for example, forecasts that the United States would be at most a few tenths of a percent richer by 2030 than it would be if the deal were not ratified. International trade is not a major part of the vast U.S. economy, the World Bank notes. What's more, most U.S. foreign trade is with Canada and Mexico, and the North American Free Trade Agreement has already eliminated many of the tariffs and other obstacles to trade with those two countries.
Another report from the U.S. International Trade Commission, a nonpartisan, independent federal agency, confirms those modest estimates. The gross domestic product would be about 0.15 percent greater by 2032 if the deal is ratified, the commission projects.
The report also identifies a few industries in particular that stand to gain from the deal, due to expanded access to foreign markets.
The dairy industry's output would increase by $1.8 billion in 2032, compared to its output if the deal is not ratified. The output of oil refineries would increase by $2.9 billion, and automakers' output would increase by $1.6 billion, according to the commission. As a result of the overall improvement in the economy, the construction industry's output would be greater by about $7.2 billion.
There are also a number of industries that would lose business to foreign competition.
The commission projects that the agreement would decrease the output of the chemical industry, including the pharmaceutical sector, by $2.9 billion in 2032. The electronics industry's output would decline by $3.7 billion. Output in titanium and leather would decline by $202 million and $119 million, respectively -- which represent substantial losses for these two relatively small industries.
The total number of American workers who would be harmed by the new rules in the agreement is also likely to be small. The Peterson Institute for International Economics in Washington projects that, at most, about 169,000 workers, or about 0.1 percent of the U.S. labor force, could lose their jobs each year in the decade after implementation. The authors of that study write that actual number of displacements would probably be much less than that.
The World Bank forecasts much greater economic effects in countries that depend more on exports than the United States. For instance, by 2030, the Vietnamese economy could be as much as 10 percent larger, and the Malaysian economy could be 8 percent larger.
Even if most workers are not affected by the deal, the consequences for those who are could be profound. Some firms might be forced to lay off employees. Others would instead hire fewer new employees. Reduced hiring would limit the opportunities for workers in those industries, both those looking for a job and those looking to move up from the one they have.
One common objection to the Trans-Pacific Partnership focuses on the issue of international exchange rates. Many economists accuse foreign governments of holding down the relative price of their currency by buying up cash issued by other countries and flooding the global market with its own currency. By reducing the price of its currency, a nation can artificially make its exports cheaper, giving its manufacturers an unfair advantage on the global market. This practice, called currency manipulation, amounts to a kind of indirect tariff.
In a recent report, the Treasury Department warned China, Germany and Japan that U.S. officials were monitoring them, but did not go so far as to accuse them of manipulation.
The Trans-Pacific Partnership is accompanied by a declaration against currency manipulation that requires the participants to release more data, but many opponents feel that language does not go far enough.
Another objection deals with the Trans-Pacific Partnership's provisions on resolving disputes between national governments and foreign investors. The deal would allow multinational corporations to sue a national government in an international tribunal. Opponents say this language would not only erode national sovereignty, but also make it more difficult for policymakers to regulate multinational companies.
For example, after the Obama administration rejected TransCanada's plan for the proposed Keystone XL pipeline, the oil company sued under a similar provision in the North American Free Trade Agreement. The company is seeking $15 billion from U.S. taxpayers as compensation.
Supporters say concerns about big corporations suing the U.S. government before an undemocratic, international tribunal are unfounded. They argue that corporations do not typically abuse their rights under such provisions, which are common in existing trade deals. The purpose of these provisions is to encourage corporations to invest abroad by stopping potentially unstable or corrupt foreign governments from seizing or destroying their assets, as well as to prevent diplomatic crises by establishing a neutral way of settling routine disputes.
Proponents also point to other provisions of the deal that are intended, for example, to foster labor unions in Vietnam and to restrict international smuggling in ivory, shark fins and other products from protected wildlife.
Above all, though, supporters argue that the deal would expand the economy -- especially in poorer countries such as Vietnam -- and failing to approve the agreement would amount to leaving money on the table.