Unforced Error: Trans-Pacific Partnership

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Neither of our presidential candidates had the guts to say something that needed saying this year.

It was this: The Trans-Pacific Partnership was a good trade agreement.  It deserved our support.

Both candidates campaigned against it, apparently in a reflexive pander to American resentment over perceived job losses to other countries.

This close-our-borders/impose-tariffs idea has been tried before, most notably with the Smoot Hawley Tariff Act of 1930. The much-increased tariffs may not have caused the Depression, but they sure didn’t help. Between 1929 and 1933, American exports declined from about $5.2 billion to $1.7 billion, real money even in those days.

In fact, the TPP had a number of goals, some of which were pretty darn good.

It included language for protection of intellectual property, chiefly American software, music and films that have been pirated widely in Asia. (This is probably why Google, Facebook, Yahoo, Amazon, Twitter, eBay, and Uber all supported TPP.)

Second, it allowed for pushback when government-owned industries tried to manipulate transfer prices or currency values to favor their exports and disadvantage trading partners.

Third, it set labor and environmental standards that we all should support.

Fourth, it increased opportunities for service industry sales, an American strength, in finance, engineering, software, education, legal and information technology. TPP would clear away nationality requirements and investment restrictions that have limited American participation in some TPP countries.

Finally, the TPP signatories, from Canada to Chile to Australia to Japan, represent a huge trading bloc — 800 million people, 36 percent of global GDP, 25 percent of global commerce and 28 percent of foreign direct investment worldwide.

A January report from the Peterson Institute said this:

“. . .TPP will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030, when the agreement is nearly fully implemented. Annual income gains by 2030 will be $492 billion for the world.”

While the U.S.would benefit most, the report added, all the participating countries would benefit. This was a win-win.

China

There is another benefit that would have resulted from TPP: developing a Pacific counterweight to China, the world’s most populous country and second largest economy.

China has been playing with currency values to promote its exports, as well as dumping below-cost products worldwide for years now. It also is acting belligerently.

China has built “islands” on sand reefs in the heavily trafficked South China Sea, claimed the lands as Chinese territory and stocked them with military installations and air strips. The plan seems to be to control the $5 trillion trade route. Brunei, Malaysia, the Philippines, Taiwan and Vietnam (TPP signatories all) also have claims to parts of the waterway, but little chance of enforcing them without the support of a larger group of nations.

China also has been meddling for years in Hong Kong politics and seems determined to make sure that voters there only get to vote for candidates pre-approved by the Chinese Communist Party.

Although TPP is not a defense pact, trade tends to bring closer relations between countries. It is likely that economic ties among North America, South America and Australia would be valuable to smaller Asian TPP members in a region where Chinese hegemony is a threat.

In fact, this has been happening recently.

–In the last 10 days, Chinese officials seized nine troop carriers Singapore (a TPP partner) had ordered from Taiwan as the carriers were being delivered through Hong Kong.
China long has held that Taiwan, an independent country, is a renegade Chinese province; the long-standing cordial relationship between Singapore and Taiwan has angered China.

Singapore also has angered China by resisting its South China Sea expansionism.
Singapore played down the troop carriers’ seizure. What else could it do? Meanwhile, an official Chinese newspaper said the carriers could be melted down for scrap.

–Several weeks ago, the president of Peru (another TPP signatory) suggested in an interview with Russian television that a new Asian-Pacific trade pact — including China and Russia but not the U.S. — might be a better way to go now that U.S. participation was unlikely. (The TPP was structured to be established only if the U.S. joined.)

China also is speaking of organizing its own new trade partnership, the Regional Comprehensive Economic Partnership, without the U.S.

–In October, Malaysia announced plans to buy small military ships from China. The sale was to be discussed by the Malaysian prime minister on a coming weeklong Beijing visit. The U.S. traditionally has been a Malaysian ally and supplier to its military.

–The Philippine president, under U.S. pressure for extrajudicial killings of drug sellers, has spent several months remonstrating about American refusal to sell his country 26,000 rifles. Recently he has suggested he may stop doing business with the United States.
“Russia, they are inviting us, China also,” he told a news agency. “China is open, anything you want, they sent me brochures.”

–Last week, the Chilean foreign minister and the Japanese prime minister said they were committed to some form of Pacific trade agreement, with or without the U.S.

Meanwhile Xi Jinping, general secretary of the Chinese Communist Party, was on his way to Latin America to promote his new plan.

About Job Losses

It does suck when people find their labor is not needed and their jobs are taken by lower-paid workers in other countries.

But think about Vietnam, a TPP country. Now that Chinese wages are going up, poorer Vietnam is becoming a go-to place to fulfill orders for items like tee shirts that sell for $10.
There is no way that American workers — earning $15 hourly wages plus benefits — are going to be making tee shirts again.

In fact, Americans have become avid consumers of cut-price, low-quality products from around the world. Do you buy furniture that is manufactured by hand in South Carolina or Ikea particle-board pieces from Asia that start crumbling after a few years? High-end Italian shoes and handbags or Chinese knock-offs? Did the washing machines, hoverboards and mobile phones that exploded in recent months come from American factories?

I thought not.

There are trajectories in a country’s development. Japan had one. After World War II, destroyed, it rebuilt its economy from the ground up. In the early days, its products were trash. “Made in Japan” meant cheap crap. Over time, the country improved its education system and industrial infrastructure, and it began turning out Toyotas, Hondas and a range of innovative Sony products, among others. Japanese wages went up and up and up.

We were in a better position after World War II. We had a good industrial base and a good education system. After the war, we built an interstate highway system and sent returning servicemen to college on the GI Bill.

Then we stopped.

By the 1970s, Japan could manufacture quality finished steel AND ship it to the Midwest for less than the manufacturing cost here because we never updated our steel plants and we paid their unionized workers more but didn’t train them to improve the mills’ productivity. It was the same with automobile manufacturing.

Now our schools range from great to mediocre to awful, and the need for people who work with their backs — in mines, on farms, in forests — is much less. We could have set a national goal to become nimble and improve our skills (as tech workers have done on their own) but after several generations of talk, we have spent a lot more money on education but have not got the job done.

As I said, it sucks, but withdrawing from world trade isn’t going to fix the situation.

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