What’s the real beef with the Trans-Pacific Partnership (TPP)?
One of the cacophonies of the 2016 election is the status and future of how America does business. Polarizing barbs are being traded over how the U.S. should conduct the “business of trade.” The debate surrounding the Trans-Pacific Partnership (TPP) is bitter, emotional and logical—or at least it feels that way. But beneath this apparent simplicity belies the question of the political priorities that Americans have to confront.
We’ve heard it all… well, at least most of the arguments for and against the TPP: it will kill working class jobs; it will strengthen the corporate dominance over the economy and society; if ratified, it will boost American exports and the economies of partner countries; it will create more high-paying jobs.
Given the significance and divisiveness of the TPP, it is a natural tendency to want to know which side to camp and bunker down in. It is easy for us to hear snippets of both sides of the argument and then pledge uncanny support for one side. Often views on the TPP, and other issues in general, are informed by our intellectual bias and personal experiences.
For those of us who have been taught to see free trade and comparative advantage as unquestionable and beneficial pillars of modern economics, it is hard to wean oneself from the intuitive logic that free trade is indeed good for the world. After all, how can one resist the idea of shared prosperity brought by the elimination of tariffs on trade and the utilization of comparative advantage? If we grew up enjoying the wide array of products such as coffee and apparels at insanely affordable prices, we know that cheap production somewhere abroad made that happen. Hence, this camp has generally been favorable to trade deals and the notion of free trade.
The same mechanism applies to people who hold that free trade deals disproportionately advantage corporate interests, displaces jobs and leads to worse social outcomes. Most often, people resistant to free trade deals have been personally afflicted by job losses. Their skepticism towards free trade deals are reinforced by intangibility of benefits from trade (i.e. they do not directly feel the benefits from trade deals, whether from cheaper goods or an uptick in other job sectors) and continued operations of their former employers, albeit in a foreign country.
We approach new iterations of trade deals with the assumptions and attitudes that align with our socioeconomic worldviews, and these lines of thoughts are understandable. But basing opinions on precedence, personal and intellectual prejudices, and quick tidbits spewed out by politicians is counterproductive. There are many people who hold differing views about the TPP, but when questioned on the substance of the TPP, these differences disappear. We hear from progressives and labor unions that the TPP serves the corporate interests and hurt the working class. We also hear from companies that the TPP offers better export opportunities for businesses and more high quality jobs. But what are the mechanics behind these arguments? Have we read enough, engaged enough and analyzed enough to have a productive and meaningful conversation?
That’s the major problem with the discourse we have today regarding the TPP. Our understanding of the TPP and trade is overly simplistic and incomplete.
A complex debate on a mega-regional trade deal is boiled down to two camps with two overarching arguments: free traders versus protectionists. According to them, the TPP is either the beneficial to the U.S. or detrimental.
But a thorough appraisal of the text of the agreement and subsequent analytical reports—analyses done by the Peterson Institute of International Economy, U.S. International Trade Commission and the AFL-CIO are tremendously helpful—reveal that the TPP is not “free trade” at all, either in the sense of the word or in economic theory. The 29-chapter agreement has both free trade and protectionist initiatives.
For instance, in the apparel and textile chapter of the agreement, reduction in tariff rates (percentage tax levied on imports) is offset by the rule of origin measure. Member countries are expected to gradually eliminate tariffs on apparel imports, making products from Vietnam in this sector such as T-shirts cheaper in TPP partner markets. But this effect will be mitigated, if not limited, by the “yarn forward rule.” This rule requires partner countries to source a sizeable amount of their apparel input (such as yarn, fabric, sewing thread, etc.) from other TPP countries in order for their imports to be granted tariff free entry into a TPP member’s market. Because most of Vietnam’s apparel inputs are sourced from non-TPP countries (mainly China), Vietnam will find it very difficult to replace its original sources with TPP sources. Even if it does find adequate input from TPP countries, their inefficiencies and high costs relative to China-sourced input are likely to reduce, or even cancel out, the benefits of zero tariffs. In short, “The result is that, what the reduction in tariff rates give on one hand, rules of origin frequently take back with the other,” writes Kimberly Ann Elliott, a Senior Fellow at the Center for Global Development, in the Peterson Institute for International Economics report on the TPP.
This contradictory dynamic of free trade and protectionist tendencies is also evident in the food and agriculture chapter of the TPP. Contrary to free trade expectations, many food and agro product in TPP countries will remain protected. Sugar imports to the U.S. will be increased, but access will still be limited. Sugar imports to the U.S. is restricted to about 30% of annual consumption as part of a U.S. program to help stabilize sugar prices. The implementation of the TPP will allot 3% of sugar imports to TPP member countries. Imports within the 3% quota will enter the U.S. with very low tariff rates; anything beyond is subjected to high tariff rates, rendering exports highly uncompetitive in the U.S. market. In regards to dairy products, major players such as the U.S., Japan and Canada will continue to enforce some amount of tariff rate quotas, albeit in an increased amount as a result of the TPP.
With some areas being opened and some remaining close, the “gold standard” the TPP represents starts to lose its luster. The notion of the TPP being the epitome of free trade does so as well. At the end of the day, the TPP is a giant commercial, social, political and trade framework with varying degrees of protectionist and liberalization tendencies. The agreement is a patchwork of compromises with uneven treatment (trade effects) for member countries and each chapter and its subsequent provisions. Accordingly, the ill-informed and simplistic discourse regarding the TPP should end.
As Vice-President Joe Biden’s former chief economist, Jared Bernstein, puts it, "It's a lot more complicated than what you read in the elementary textbooks.”
He said supporters of the TPP should not conflate trade and globalization—which he called positive forces for the most part. Instead, trade agreements are complex sets of rules that can be thought of as handshakes among investors on both sides.
"You really have to know what's in the deal before you say, 'I like this because it says trade on it,' which I'm afraid is a very simplistic analysis that I'm hearing much too much of these days," he said.
When this clarity is reached, the question is not so much about whether we support free trade or not. The question is whether we are ready to live with the TPP in its current shape and form, and the repercussions. It is also a question of our political priorities.
To the credit of trade negotiators and political leaders who crafted the deal, the TPP is more to the polar end of free trade in comparison to other previous free trade agreements. Nonetheless, its mix of market liberalization, protectionism and harmonization produces winners and losers. But What in life does not have trade-offs? advocates would argue. The TPP will lead to the job losses of certain sectors, but overall the U.S. economy will grow by 0.15% by 2032 and promising sectors such as financial services and technology will expand. Additionally, how can we pass the opportunity to write the rules of trade in the Asia-Pacific, and potentially, reinvigorate the world trading regime?
That is a judgement call that people, well at least elected representatives, have to make some time in the next few months. The effects of trade agreements have had varied impacts on various countries and different classes of citizens of those countries. Are we alright steamrolling past very real loss of livelihood and atrophy of the manufacturing industry, while various agriculture products are shielded in the name of progress? Or can we try to reassess how we have been moving ahead in the past few decades in regards to trade – to examine if the stakeholder composition is relevant to our times, to check if empirical evidence of trade fits the theories and assumptions we use to justify trade agreements, and to evaluate what type of society and politics we want to build.
With two-thirds of the labor force without a college degree, it is no surprise why the prospect of the TPP passing Congress is slim in the immediate future, especially in the light of incoming elections. Hillary Clinton and Donald Trump in their displeasure of the deal may just have granted us to additional time to reevaluate what our political priorities and personal convictions are for “how we do business.”
TL;DR The TPP has no TL;DR. Perpetuating the simplistic discourse surrounding the TPP will only do harm.
The views expressed in this article do not necessarily represent the views of other Arbitror contributors or Abitror as a whole.
Photo: "HD rally with reps and TPP = Betrayal at Convention Center during Localize This 2016." by Backbone Campaign on Flickr.