During elections, both sides can be more wrong than right. Advocates and critics of the Trans-Pacific Partnership (TPP) both misrepresent the deal: The TPP will have little effect on the American economy, positive or negative. What matters for the election and after is the precedent. Ratifying or rejecting the TPP sets different precedents and brings different risks.
The TPP has become a symbol for open trade and globalization more broadly. Standard criticisms include “it’s just like NAFTA (the North American Free Trade Agreement),” it will cost millions of jobs, it’s a sell-out to big corporations. Some claims are vague and hard to refute. Others are just wrong.
Attacks on Wall Street and large companies focus on a process known as investor-state dispute settlement (ISDS), said to privilege corporations over democratic governments. What is typically not said is ISDS has been part of American trade agreements for decades, including with six TPP countries. The United States has never lost a case.
Next up, NAFTA did not cost the United States jobs. NAFTA went into force in 1994. For the next six years, labor force participation rose from already high levels (in contrast to the current situation). Unemployment fell, manufacturing jobs rose, and manufacturing wages rose.
The belief that NAFTA or trade generally cost millions of jobs may stem from the 2001-03 period. During that time, the United States lost 2.8 million manufacturing jobs partly due to the dot-com bubble bursting and partly to China entering the World Trade Organization (WTO) in 2001.
Greater competition with China has cost manufacturing jobs, mostly in that three-year period. But China is not in the TPP and China joining the WTO is not a TPP flaw. Critics cite currency manipulation as a China-related problem the TPP does not solve. But there is no actual evidence Chinese currency manipulation costs American jobs.
When China has strengthened its currency, as the critics want, American unemployment has risen. When China’s currency has weakened, unemployment has fallen. During 2001-03, when millions of jobs were lost, China’s currency did not budge. It’s another false issue.
All this does not mean TPP is a good thing. It offers very little in terms of purely economic benefits to the United States and ratifying it will set a poor precedent.
Advocates of the TPP, led by the Obama administration, emphasize its new rules. There are general and specific problems with this. The general problem is that setting rules is not an end in itself, the goal should be to set good rules. And good rules should benefit the rule-followers.
It’s thus telling that supporters mention concrete benefits much less frequently. This is because the TPP can be expected to have almost no effect on the American economy. The independent International Trade Commission (ITC) found benefits smaller than normal economic fluctuations and arguably too small to be accurately conveyed by a model.
Perhaps the biggest reason for this shortcoming is the TPP’s specific rules suffer from too many exceptions. The largest potential benefit for the United States lies in services exports. Taking services as a whole, America is the world’s most competitive exporter, for example running in 2015 a $260 billion services trade surplus.
Truly reducing services trade barriers would make the TPP worthwhile. But the agreement contains hundreds of pages of “non-conforming measures” countries can use to block American services exports.
This is why the ITC sees no real effect on American services exports — while new rules are set, the exceptions mean they will do no good. The same principle applies to restrictions on state-owned enterprises: Countries can game them and continue to use state enterprises to warp competition.
The president and Congress should not struggle with TPP’s economic effect, it will be tiny. They should consider other implications of ratification versus rejection.
Rejecting the TPP will be costly. Trade partners will deem the United States less reliable, believing Americans are too divided about trade, and other things, for future negotiations to be worthwhile. Ratification risks are subtle. If ratified, the TPP will serve as a template for possible deals with Europe and others. Since it offers the United States little economic benefit, extending its weak rules and many exceptions is unwise.
When both sides are wrong, the best choice is obscured. While TPP critics are throwing mud, the United States should avoid trade choices that do not boost our economy. The TPP should be set aside. The next president should start what will be difficult negotiations with those willing, for example the post-Brexit United Kingdom, to sign stronger agreements.
