A trade watershed?

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WASHINGTON,DC: The trouble with our trade debates is that people assume that they’re only about economics. Since World War II, US trade policy has also been a pillar of US foreign policy. In the early postwar decades, America encouraged trade with Europe and Japan — allowing more of their exports into the United States — as a way of achieving our political goals. Trade would build their prosperity, and their prosperity would promote democracy over communism.

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“There was a confluence of security and economic considerations,” says Harvard political scientist Jeffry Frieden. American officials recognized that “giving [our allies]access to the American market was a lot cheaper than foreign aid.” Besides, US economic superiority was taken for granted. Before the war, American and German chemical companies had been rivals. “By 1945, we didn’t have to worry about the German chemical industry,” he says.

It’s true, as Frieden notes, that this consensus weakened in the 1970s. Once Europe and Asia rebuilt, their exports — of steel, shoes, televisions, cars — threatened American jobs. The Reagan administration pressured foreign governments to impose “voluntary” limits on some exports to the United States. Still, the pursuit of political ends by economic means remains at the core of US trade policy.

All this provides context for the controversy over the Trans-Pacific Partnership (TPP), the trade negotiation among 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam). Together, these nations represent almost 40 percent of the world economy, with the United States and Japan accounting for about four-fifths of that.

Negotiations cover many issues. Japan has tariffs of 600 percent or more on rice. Presumably, these would be reduced or eliminated. Although the average trade-weighted US tariff is 1.4 percent, there are exceptions. American tariffs on shoes range from 11 percent to 70 percent; Vietnam wants them curbed. Talks also involve less traditional issues: limits on subsidies to state-owned companies; patent protection, especially for drug companies; rules governing where computer data must be stored.

Still, plausible economic gains from expanded trade seem modest. By 2025, the incomes of the 12 countries could increase by 0.9 percent, estimates an oft-cited study for the Peterson Institute. In today’s dollars, that would be about $320 billion (the US share: $85 billion). By contrast US GDP is approaching $18 trillion, and global GDP is quadruple that. The fuss over TPP seems disproportionate to the stakes.

Not so.

What this ignores is geopolitics. A TPP failure — because countries don’t agree or Congress kills the final result — could produce a historic watershed. Present US trade policy dates to congressional passage of the Reciprocal Trade Agreements Act of 1934, which authorized the president to negotiate tariff cuts with other countries. (Before that, American trade policy was highly protectionist.) A TPP rejection could mean the end of an era.

“It would be taken as a signal that the United States wasn’t able to maintain the consensus and commitment that we’ve had since [the mid-1930s]for trade liberalization,” says University of Maryland political scientist I.M. Destler.

Liberalization has generally served us well. Trade has delivered geopolitical benefits in many, though not all, cases. After World War II, Europe traded together and avoided another war. Or consider Mexico. Since joining NAFTA (the North American Free Trade Agreement) in 1994, its exports to the United States have expanded more than sevenfold. (Over the same period, US exports to Mexico rose fivefold.) This has helped stabilize Mexico’s economy: something in America’s interests.

Of course, there are costs, most obviously job loss. One study published by the National Bureau of Economic Research estimates that Chinese imports eliminated from 2 million to 2.4 million US factory jobs from 1999 to 2011. That’s roughly 40 percent of the 5.6 million lost manufacturing jobs in these years. Not everyone agrees. Harvard economist Robert Lawrence says continuous production efficiencies explain most job loss.

Whoever’s right, there’s a larger truth: swings in the 148 million US job market depend mostly on the domestic economy’s health. Meanwhile, imports provide other economic benefits: lower prices, more consumer choice.

What endures is the marriage between economics and geopolitics. For the United States, TPP’s overriding purpose is not to contain China but to create a counterweight to its rise.

We seek to reassure nations that we’re still a Pacific power and that our proposal represents a useful framework to govern the region’s trade. A collapse would leave a vacuum that China would most likely fill. Through its own trade agreements, China might fashion a system that gives its exports preferential access to foreign markets, while securing guaranteed supplies of raw materials (oil, grains, minerals). That’s not in our interests.

So when opponents criticize TPP, they need to answer a simple question: compared to what?

(C) 2015, THE WASHINGTON POST WRITERS GROUP

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1 Comment

  1. Justaskingseriously on

    Your perspective is definitely mind widening. Dana Milbank’s view that TPP is an abomination makes one think he might have unwittingly included in the TPP the abomination for the U.S.A. workers that is China. Senator Elizabeth Warren needs to discard her antiquated stance that is a sort of a throw-back from the 1823 Monroe doctrine. Times have changed. Geopolitical considerations in favor the the TPP must prevail in these times.