There are times when economics is secondary to other policy considerations—not irrelevant, but secondary. Last week, when 12 nations on the Pacific Rim finally agreed to the Trans-Pacific Partnership after years of negotiations, was one such time. This gives President Obama a much-needed victory—if he can persuade enough of his Democratic colleagues to join a majority of Republicans in approving the deal when Congress gets to have its say in up or down votes early next year. The opponents include the usual gang that doesn’t trust markets and therefore opposes anything that opens them further: Bernie Sanders, trade unions, senators from states home to industries counting themselves among the losers or eager to remain aboard the Elizabeth Warren bandwagon, not to mention opportunists like Hillary Clinton, hoping to appeal to all of the above. And, to be fair, there are those who genuinely believe that past trade deals, which like this one create losers as well as winners, worked to the benefit of big corporations and to the detriment of average middle-class and unskilled workers and the environment.
If you raise cows for milking or eating, or chickens, TPP will open more markets for your products, and if you grow soybeans you can cheer an end to 35 percent import duties in key markets, one of some 18,000 anti-U.S. tariffs consigned to the scrap heap of history. So, too, if you are in the services sector or manufacture heavy equipment or aircraft. If you sell tobacco products, you lose: The deal prohibits you from suing foreign governments over anti-smoking measures. And big pharma lost a battle to protect certain medicines from competition from generics for 12 years—a feature of the Affordable Care Act. TPP guarantees only five years, with extensions possible but not certain. If you work in the auto industry, you have to guess whether you win because restrictions on imports from Japan have been extended for 25 years, or lose, as Ford officials claim, because the TPP does not bar Japan from manipulating its currency, even though one surprise addition to the pact is a pledge of greater macroeconomic cooperation, “including on exchange rate issues.”
We won’t be able to guess at the net impact on the American economy, its corporations, workers, consumers, and the environment until we see the details and hear from all of the affected parties. Trading partners often give ground on tariff protection only to substitute even more effective protectionist barriers such as safety inspections and health codes that keep our goods out of their markets. Nor can we be certain that all provisions will be enforced, and if so how. The TPP sets up arbitration panels to settle disputes, which involves a transfer of sovereignty to these international panels from our own courts. That certainly won’t trouble our president but should be counted as a negative feature of the agreement, or at least a worrisome one, since international panels are generally not optimal forums for the United States. And TPP contains enforcement provisions of uncertain effectiveness. Which is why Glenn Prickett, an official of the Nature Conservancy, one of the green groups delighted with the treaty’s environmental provisions, cautions that much will depend on the effectiveness of monitoring and enforcement of the provisions protecting wildlife and endangered species.
One thing is certain: Obama is a winner and China is a loser in what is a regional zero-sum game. Some observers see TPP as less a tariff-cutting deal than a rule-making arrangement, better characterized as “managed trade.” The Obama pivot to Asia that so far has succeeded only in posting 2,000 U.S. Marines in Australia, a bit closer to the islands China is building in the South China Sea—not intended to be potential competitors to Macao or Club Med—now includes a hard-won pact that makes America an economic presence on the Pacific Rim, binds its 11 allies to it with hoops of cash and investment, and puts us in a position to set the rules of the economic road in an area accounting for some 40 percent of the world’s output of goods and services and about one-third of world trade.
That is not to say that this deal is an offset to China’s increasing belligerence in Asia, or enables us to take a more relaxed attitude towards the Communist regime’s new ability to develop missiles that can sink our aircraft carriers. No trade deal could do that. But it does strengthen our hand in the region, give our allies there something other than still another abandonment of friends, and indicate that there is more to soft power than the production of academic papers at Harvard. Perhaps even more important, TPP serves as a template for an agreement covering the entire Asia-Pacific region, which accounts for over 60 percent of world GDP and 50 percent of international trade. With China on the outside looking in.
As details of the 30 chapters are published and leaked, we will be better able to form a final judgment. For now, the prospect of a more efficient allocation of the world’s resources, the geopolitical win, and the possibility of a still greater win in a region, like so many others, in which we have not done well of late seem to us to carry the day, especially if policies to transfer some of the gains of the winners here to innocent bystanders, our collaterally damaged losers, can be devised.