Will US elections sound the death knell for TPP?
The US presidential election campaign is a fascinating case study on how politics overwhelms better judgment. The case in point is how the short term needs of an election campaign can wipe out years of careful work and good judgment of economists that went into the drafting of the Trans-Pacific Partnership (TPP) agreement. TPP is now gasping for breath and has been severely mauled and wounded by the top candidates. Congress has to pass the agreement in the next five months, since the dynamics will change after the US presidential elections on November 8, 2016. After the new president is elected, and considering the fact that all the front-runners have voiced reservations about TPP, it would be impossible for Congress to pass a treaty that was negotiated under the watch of President Obama, who leaves office in less than three months after the election, but most importantly one that is potentially opposed by the newly-elected president.
US President Obama signed the TPP on February 3, 2016 but House Speaker Paul Ryan immediately announced that there were not enough votes to pass it. The main obstacle to approval, Republican leaders say, is that there is not enough support to approve the agreement because of concerns raised by financial services, pharmaceutical and tobacco companies. As the primary season got under way earlier this year, opposition to TPP grew. And, to borrow from a well-known speech in Julius Caesar by Shakespeare, all TPP opponents are parroting Marc Antony in one voice: "I come to bury Caesar, not to praise him". And, as Marc Antony later laments, in this electioneering season good judgment has taken leave of politicians who are fighting for the coveted chair in the White House. Call all this xenophobic, or "irrational" as economists would, it has a strong hold on the current US political discourse.
There are several next steps needed before Congress votes on a TPP implementation bill, including a review of the United States International Trade Commission (USITC) report. USITC is an independent, bipartisan, quasi-judicial, federal agency of the United States that provides trade expertise to both the legislative and executive branches. The 800-page evaluation based on a dynamic CGE model offers a lukewarm support for TPP, and basically reinforces what many of the pact's detractors had suspected, viz. the gain in GDP, employment and exports would be minuscule. Congress is not likely to consider the bill before reviewing this report, so the agreement could be voted on late this summer. Once the TPP implementation bill goes to Congress, the House must vote on the bill within 60 legislative days and the Senate must vote within 15 days after the House votes. The clock starts ticking for the US elections, and if Congress has not approved the bill by July 2, the last day of the Republican National Convention, it would be tough for the Republican dominated House to pass the bill with Donald Trump as the Republican nominee.
So what is the roadblock? As can be expected, the current election cycle brought up the fissures along the US body politic in relation to trade pacts. And the ghost of a past pact seems to have cast a very deep shadow. Even though study after study shows that NAFTA benefits US consumers, and the overall gain for the US economy outweighs the losses due to job losses and outsourcing, almost the entirety of the US electorate believe that NAFTA is 'bad'. Recent opinions polls found that almost two-thirds of US voters favour restrictions on foreign trade and view free trade with deep suspicion, even if they have to pay a penalty in the form of higher prices. And the rationale is pretty simple: protecting domestic jobs is considered a higher priority over less expensive imports. More jobs over lower price. "It's perhaps the only thing that businessman Donald Trump and democratic socialist Bernie Sanders agree on: free trade. Both say that if elected president, they'll get out of the North American Free Trade Agreement (NAFTA), which they say floods the American market with inexpensive goods, produced with cheap foreign labour, in turn making American-made goods – and jobs – disappear."
And, what about Hillary Clinton? While serving as Obama's Secretary of State, she was supportive of TPP and the Obama Administration's efforts until she left office in January 2013. She switched her allegiance and announced her opposition to TPP after negotiations were completed last year. During the February 4, 2016 presidential debate, Clinton said she opposed the trade deal because, "We have failed to provide the basic safety net support that American workers need in order to be able to compete and win in the global economy." Then in May, she said Congress shouldn't take up the agreement as it is currently written, either this year or even next year if she is elected. Let us look at a couple of scenarios. If Trump wins, the Senate majority leader Senator Mitch McConnell would be too happy to delay the debate until President Trump is sworn-in. On the other hand, if Clinton wins, she will be in no mood to let the Republican-dominated Congress pass the bill, and her position has hardened as she is trying to please the Sanders supporters. She recently reiterated that she would oppose any new trade deal unless they meet her three-point test of creating US jobs, raising wages and improving national security.
So, I do not foresee that TPP will have an easy sailing notwithstanding President Obama, who during a trip to Vietnam said on May 23 that Congress will approve TPP before the elections. However, since several studies show that economic gains for the US in key areas is small, whether voter sentiment will change as they see the benefits of cheaper goods, digital commerce, and global investment opportunities, is moot. The trade deal would hurt manufacturing and reduce the sector's growth by one-fifth. According to a report by the Peterson Institute for International Economics, "The lost manufacturing jobs will be offset by higher employment in service and "primary goods" industries that rely on exports, like agriculture and forestry." These jobs, according to this study, pay higher wages than the jobs lost. The authors note that "workers in specific locations, industries, or with skill shortages may experience serious transition costs," but compensation for displaced individuals could be extracted from "a fraction of the total US gains." The billion dollar questions remains: Would Congress be keen on taking initiatives on these ideas? Meanwhile, another voice against plurilateral trade pacts, such as TPP, is Jagdish Bhagwati. He, as always, favours free trade but not the kind that TPP codifies. As a true believer, he uses the standard "Gains from Trade" framework and points the finger at TPP for its role in trade diversion rather than trade creation. Jagdish Bhagwati argues that "so-called free trade agreements (FTAs)", which he maintains are in fact preferential trade agreements (PTAs) involving two or more countries, "actually set back the cause of free trade and undermine the multilateral trading system" propounded by the Doha Round of WTO negotiations.
The writer is an economist, and his most recent book, Economics is Fun is a collection of essays published in The Daily Star.
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