First there was Obamacare and now we have Obamatrade.
Once again, a complex bill makes its stop-and-start journey through the U.S. Congress. As was the case with the Affordable Care Act, his other legacy-defining legislation, President Obama has failed to sell the rationale to “fast track” the Trans-Pacific Partnership (or TPP), a sweeping trade deal covering a dozen nations, in simple terms.
With his tenure in office running out, the president is in a hurry to close. Many of the details of the deal have not been made public, which provides ammunition to his opponents. And what is ultimately most confounding for a public used to old-fashioned legislative gridlock along clean partisan lines, here the president is battling his own party.
The TPP deserves better. It has some impressive credentials in terms of its potential for impact – it spans 36.3% of global GDP, 31.9% of global trade and could boost world trade by 12% by 2025. Yet, we continue to be treated by arguments where analogy trumps analysis and pragmatism takes a backseat to posturing and pandering.
There are six essential truths about this deal worth keeping in mind:
This trade deal is more than just about trade: Of course, from trucks to sugar, many industries will directly experience significant change in industry structures as tariffs and barriers fall. However, the agreement spans labor laws, intellectual property, freedom of expression, investor-state dispute resolution issues and environmental standards, to name a few.
The TPP is much more about setting sustainability, fairness and inclusion standards across disparate economies than an agreement just about the lowering of tariffs and trade barriers. As a matter of fact, for most of the major countries involved in the TPP, tariffs have already been lowered by earlier trade agreements. This is why fast-tracking its passage cannot be straightforward. Many different groups, from the AFL-CIO to the Electronic Frontier Foundation, will have an interest in weighing in. Without question, this deal is not black and white; it will involve trade-offs. Without addressing the trade-offs in a holistic way, it is meaningless to truly evaluate the deal and determine what aspects of the deal need to be modified. The President ought to make time and open the books on the deal to enable an objective evidence based evaluation of the trade-offs.
With the events in Baltimore, the TPP must be paired with a vision for the post-post-industrial America: The riots in Baltimore were more than just about police tactics and race relations. Baltimore is a classic post-industrial city, like so many others in the U.S. that has had no transition plan for what happens to the jobs lost as traditional industries, shipbuilding, canning, etc. go elsewhere.
Globalisation invariably leads to transitions in what work gets done where – to the benefit of all. Without question, the U.S. will lose certain classes of jobs post-TPP when partners, such as Vietnam, with inherently lower wages and an aspirational workforce are better positioned to take them on. But then, U.S. exports are expected to go up by 4.4% by 2025, according to the White House, which has the potential to create a different class of jobs. The U.S. professional services sector could also benefit from growing economies in Asia. These forms of shifts in jobs are a natural outcome of a global marketplace, where different countries and regions re-focus on their comparative advantage to the benefit of all. However, the re-focusing requires vision and a plan to get to it as to what comes next after one class of jobs disappears; otherwise, we risk producing the next class of Baltimores.
The debate in Congress will not scare off the partners: Ironically, the partnership matters much more to America’s partners in terms of its economic payoff than it does to the U.S. For the U.S. the gains – 0.3 – 0.4% bump in its GDP – are modest and on pure economics alone, would seem hardly worth all the sturm and drang. Vietnam, on the other hand will get a 10% GDP boost. Japan will benefit by 2%, which is a giant leap for a country stuck in over two decades of a recession. The partners would hang on for the long ride and would be keen to see it through. After all, it is no secret that the U.S. Congress does not pass measures without kicking up a fuss. The stop and start process serves the purpose of sending a signal to America’s partners that the U.S. voters have concerns and they need to be addressed. It is okay to take a deliberative approach, consider all the trade-offs and not attempt to rush this through with sound bites and secrecy.
The geopolitical benefits will keep everybody focused on getting the deal done: As argued already, the economic gains are uneven. However, the geopolitical gains are huge for all key parties. Both the U.S. and its Pacific Rim partners have strong needs to check China’s growing influence. It is important for the Asian partners to diversify their trading relationships beyond China. They need leverage against Chinese economic influence and territorial aggression in the region. The deal serves American geopolitical interests as well. For the U.S., the much talked about “Asia pivot” had devolved to an “Asia peeve” when it could not coax or cajole its friends to stay away from China’s Asian Infrastructure Investment Bank. The deal is a way for the U.S. to recover some of its balance. If he can get it over the line, Obama sees it as his pivotal foreign policy gift to the nation before he leaves office. That said, it is in the interests of future administrations to close the deal as well.
Yes, even China wins from the TPP, so they want the deal done as well: On the surface the TPP might appear to leave China on the outside looking in. Faster export-led economic growth in the region will give Chinese businesses plenty of new work to replace the domestic slowdown as a result of China’s own pivot from an investment-led to a consumption-led economy. A sturdier Pacific Rim region will increase demand for Chinese infrastructure, telecom and financial service companies. As e-commerce giants such as Alibaba descend on the region, the easing of cross border regulations and tariffs will benefit Asia’s biggest economy and the fastest growing e-commerce companies in the world emerging from there.
Deliberate on the core tradeoffs, but beware of red herrings: The reddest of herrings as far as the TPP is concerned is the concern about currency manipulation by key partners. The concern is that foreign governments purposely depreciate their currency and stockpile U.S. dollars to drive up its value in order to boost their exports. A case in point being the primary partner in the TPP: Japan, among the most widely accused of currency manipulators. Many U.S. lawmakers who are blocking passage of the fast track want currency manipulation clauses and punitive measures written into the agreement. The problem is that while the concern is a legitimate one in theory, trade agreements are poor instruments for dealing with the problem. In practical terms, manipulation is impossible to monitor in a systematic way, it is hard to verify and it is difficult to enforce punishments or retaliatory measures that would credibly deter such behavior. In other words, we should get beyond these distractions and focus the debate on the real issues that have practical relevance to how the agreement is framed.
Ultimately, the TPP must be considered as part of a bigger picture. It is about playing a stewardship role along the busiest trading routes in the world and about participating in Asia, from where half of the world’s output will come by 2050. Turning away from what is essentially a seat at the future global high table is not an option. At the same time, forging ahead without a transparent and holistic discussion of the tradeoffs is also foolhardy. Attempting to rush through the process without getting buy-in and using laughable background props takes focus away from the issues. Leadership abroad must begin with leadership at home.
The slow pace of the fast track is the right path to take. Let us hope that the time is used wisely.
A version of this article first appeared on CNBC.
Author: Bhaskar Chakravorti is the Senior Associate Dean of International Business & Finance at The Fletcher School at Tufts University and the founding Executive Director of Fletcher’s Institute for Business in the Global Context. He is a member of the World Economic Forum’s Global Agenda Council for the Economics of Innovation.
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