The Geo-Strategic Case for Mega Trade Deals

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All too often, pundits approach trade with an agenda to the degree that readers begin to expect one, and they seek early on to suss it out. So let’s begin with a disclaimer: I am ambivalent (if not agnostic) on both TPP and TTIP.

 

There is no doubt that trade generates wealth; that leveraging comparative advantages makes an endless number of everyday goods cheaper for working class families; that trade sparks the technological innovation that allows doctors to diagnose across continents and grown women and men to chase Pokemons on their telephones.

 

There is also no doubt that international trade has played a role in gutting heartland American cities, which struggle to compete with low-wage labor overseas. The US may maintain a comparative advantage in high-end goods and innovation– but the windfall here is concentrated, and unlikely to “trickle down” very far in a country of 318 million people.

 

So, with this disclaimer in mind, I get to the point: the discussion of trade in the 2016 US Presidential Elections has been dumbed down, to be sure, but more perniciously, it has been incomplete.

 

In particular, both Hillary Clinton and Donald Trump have criticized the Trans-Pacific Partnership (TPP) – a proposed deal with Pacific countries and one of the two massive potential trade agreements that have been under negotiation for the last years along with the Transatlantic Trade and Investment Partnership (TTIP) – a proposed agreement with the European Union (EU).

 

Trump has led the charge, adding TPP to his expanding list of worst deals in history. Clinton, sensing that Trump (not to mention fellow Democrat Bernie Sanders) has struck a nerve, has becoming increasingly protectionist herself.

 

But if TPP and TTIP are, in fact, job killers that ship livelihoods overseas, why has President Barack Obama—generally considered a left-leaning president—pushed  the agenda throughout his second term in office?

 

The Terms of Trade

 

Let’s first acknowledge certain realities. TPP is not what killed manufacturing jobs in Philadelphia. Global trade in general rendered those factories uncompetitive—and whether one likes it or not, or whether the US becomes more protectionist or not—global trade is here to stay.

 

If trade is the name of the game in 21st century global economic relations, the fundamental question becomes what are the rules of that game? And by rules, we mean property rights, labor laws, and environmental regulations.

 

The Obama Administration pushes TPP and TTIP because, combined, these mega-trade deals would set standards for over 60 percent of global commerce. These deals are not primarily about tariffs –average tariffs for these countries are already relatively low. Closing these two deals would put the United States in the catbird seat for setting the rules of global trade by which the rest of the world would ultimately have to play.

 

For example, the US places high value on intellectual property rights, which guarantee that your cutting-edge software or your Pokémon chasing app cannot be cribbed, repackaged and resold. This defense of intellectual property rights rewards and protects innovation. By including these provisions in TPP and TTIP, the US aims to make them a cornerstone in 21st-century trade. Similarly these deals feature labor provisions, which might include age requirements, safety conditions, and the right of organization. Without such regulations, not only would US producers and workers compete on a far more uneven playing field with trading partners that have preferential access to the US market, but the global race to the bottom would ultimately lead to a far more polluted planet.

 

Of Trade Containers and Strategic Containment

 

Yet if we listen to our political discourse, TPP is portrayed as part of US kowtowing to China. Quite the opposite is true. Though US officials can never admit it out loud, TPP is specifically a US strategy to contain China.

 

It bears repeating that China is not part of TPP negotiations, because it would not agree on the (relatively) high standards the pact aims to set. Brazil, India and Russia are other major countries that are not party to TPP or TTIP negotiations.

 

 

If the US can implement both deals, it backs obstinate countries into a corner: Either they remain outsiders looking in on 60 percent of global trade, or they eventually join on, accepting the standards that have already been established, and that favor the US.

 

In this sense, the mega-trade deals help solidify the geo-political importance of the United States. Consider some of the other members of TPP: Japan, Vietnam, Mexico, and Malaysia. If we think the west is concerned about China’s rise, imagine how its neighbors feel. Japan, for example, is a country with high labor and product standards – it does not want China setting the rules of trade. These countries are turning to the US as a bulwark against China’s rise, and their interest in TPP implies that they would rather tack towards the US’s standards.

 

And if China or Russia or Brazil eventually do want to join, at that point the deals will already be done. Thus, unlike with US, they would not have a voice in setting the rules of trade. They would have to play by existing rules.

 

The Opportunity Cost

 

So, what if a President Clinton were to scuttle negotiations? (I still refuse to concede the feasibility of the alternative.) TPP and TTIP dialogues do not occur in a vacuum, and Asian countries have no intention of letting the US and EU write the rules of global trade alone. A group of Asian countries have combined to develop their own deal called the Regional Comprehensive Economic Partnership (RCEP). Critically, RCEP includes China and India, and not the US, and it pays limited attention to labor, quality or environment standards. Herein lies the urgency of the Obama Administration in implementing TPP.

 

If the US cannot set the rules of 21-century trade, someone else will. And in the end, it may be American workers that pay for it.

 

 

Want to learn more about how trade can drive prosperity? Check out our infographic on the topic here!