Supporters of the Trans-Pacific Partnership (TPP), a trade agreement under negotiation between the United States and 11 other countries, make this case: Trade between countries is always good, and more trade with more countries is even better. Harvard economist Greg Mankiw goes further in a recent New York Times piece, arguing that anyone opposed to trade deals does not understand elementary economics.
The arguments made by these advocates do not match the reality of the modern world and are not helpful for thinking about what is at stake in the TPP. It’s not a question of understanding economics. It’s a question of knowing precisely what we’re agreeing to when we sign the TPP.
In the simple models of introductory textbooks, countries improve their respective economic outcomes by specializing in their “comparative advantage” — the goods they produce more efficiently than their trade partners — thereby increasing the supply of goods and lowering prices. No government subsidy is involved, nobody cheats, everyone is well-informed about the nature of the deal, and pretty much all parties come out ahead. If anyone loses their job, in those models either they get another good job or they can be fairly compensated by the people who gain extra income.
In the real world, governments have trade strategies designed to help powerful interests in their countries or to gain advantage over a trading partner. Some officials provide large subsidies to state enterprises; look carefully at how Vietnam works. Others, such as China, have manipulated their currencies to subsidize their exports to us and tax our imports to them. Others just keep our goods out – try selling autos or auto parts to Japan. The implicit subsidies in these strategies are an important reason we’ve lost millions of manufacturing jobs since the 1990s.
And cheating is widespread, in the sense that some countries blatantly violate international rules – including with regard to child labor, workers’ rights and environmental protection.
President Obama knows all this, and he is right to argue that we should seek to write the rules for trade in the 21st century – rather than simply let globalization happen to us. But if the TPP rules, which are now almost complete, are as good for American workers as he claims, why is it important at this stage to keep the public in the dark on all the details?
Our concern, and that of numerous congressional Democrats who have had access to draft chapters of the agreement, is that some people will lose in a big way from TPP – and compensation, for example in the form of Trade Adjustment Assistance, will be trivial.
Moreover, the administration has dug in hard against enforceable rules that would prevent or at least discourage currency manipulation – when countries engage in deliberate and persistent undervaluation of their exchange rate. The administration justifiably touts the benefits to our exporters of requiring TPP signatories to lower their tariffs – offering the promise that the price of our goods in their markets will fall. But any tariff reduction can be undone in a day if a country devalues its currency relative to the dollar by the same amount.
The reality is that most large global corporations now move production and jobs easily around the world. Their executives really do not care if one country massively manipulates its currency, even if that wipes out the ability of factories in the United States to compete. The interests of multinational companies do not necessarily align with those of their American employees.
Instead of debating the merits and details of TPP from the perspective of these real world trade issues, Congress will soon vote on a procedural step: the Trade Promotion Authority (TPA), which would allow an up-or-down vote on subsequent trade deals, with no amendments permitted.
This sequencing is off. Once TPA passes, TPP is much more likely to clear the legislative hurdle (for example, it would then require only 51 votes in the Senate, not a filibuster-proof 60 votes).
The administration is eager to pass the deal, but if it does so without giving the public a chance to learn and debate the details, this risks creating a bigger backlash against globalization – something that helps neither us nor our trading partners.
Instead of fantasizing about the benefits of an imaginary trade deal, let’s have the needed independent and public analysis of the rules embedded in the actual TPP — rules that we will be living with for decades.
Take the time and make the effort to get the rules right.