Slow it down! Don't fast track the TPP
First there was Obamacare and now there is Obamatrade.
Like President Obama's legacy-defining legislation, the Affordable Care Act, the Trans-Pacific Partnership (TPP) is a bafflingly complex bill that is bouncing between life and death on Capitol Hill. Once again, the president has failed to sell Congress, including members of his own party, and the public on a landmark piece of legislation.
Understandably, because of his dwindling time in office, the president is in a hurry to close on a "fast track" version of the deal, but he may want to take his foot off of the gas. In order to move past the political gridlock and irrelevant policy minutiae, and instead, focus on realizing the global potential of the TPP, there are six essential truths he and others should keep in mind before attempting to rush through the process:
This trade deal is about more than just trade. Many industries will directly experience significant change as tariffs and barriers fall. Tariffs are already low for the key countries involved. However, the TPP aims to set sustainability, fairness and inclusion standards across disparate economies beyond just an agreement to lower tariffs and trade barriers. This is why a fast-track passage for the bill is not prudent or straightforward. This complicated deal will have trade-offs that must be addressed holistically, with input from many different industry groups, in order to be evaluated and modified properly. Instead of blindly fast-tracking the bill in its current state, the president ought to make time and open the books on the deal to enable an objective evidence-based evaluation of the trade-offs.
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The TPP must be paired with a vision for the post-post-industrial America. Many post-industrial cities such as Baltimore, Detroit, and others struggle with unemployment and economic turmoil following the decline of America's traditional manufacturing industries, and most of the argument against the TPP centers around further loss of American jobs. But in reality, globalization consistently results in geographic shifts of job classes — to the benefit of all. Without question, the U.S. will lose certain classes of jobs post-TPP, since partner countries, such as Vietnam, are better positioned to take them on. On the contrary, U.S. exports are expected to increase 4.4 percent by 2025, according to the White House, potentially creating entirely different job classes. The U.S. professional-services sector could also benefit from growing economies in Asia. These forms of shifts in jobs are a natural outcome of a global marketplace as different countries and regions re-focus on their comparative advantage to the benefit of all. Re-focusing on job creation in the U.S. with these global trends in mind requires vision and a plan to map out what comes next after one class of jobs disappears; otherwise, we risk producing the next class of Baltimores and Detroits.
The fuss in Congress will not scare off the partners. It is no secret that Congress does not pass measures without kicking up a fuss. But ironically, the heated debate won't deter America's partners because the TPP matters much more to them than it does to the U.S., particularly from an economic standpoint. The gain of 0.3 to 0.4 percent in U.S. GDP is modest when compared to Vietnam's 10-percent GDP boost and even to Japan's 2-percent benefit, a giant leap for a country stuck in over two decades of a recession. The partner countries would likely hang on for the long ride, keen to see the partnership through. The stop-and-start process is also surprisingly helpful for the U.S. because it serves the purpose of sending a signal to these partners: American voters have concerns and they need to be addressed. So, it's perfectly OK to take a deliberative approach, consider all the trade-offs, and not attempt to rush this through with sound bites and secrecy.
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The geopolitical benefits will keep everybody focused on getting the deal done. The economic gains are uneven. However, the geopolitical gains are huge for all key parties. Both the U.S. and its Pacific Rim partners have strong incentives to counter China's growing influence. It is important for the Asian partners to diversify their trading relationships beyond China in order to gain leverage against Chinese economic influence and territorial aggression in the region. For the U.S., the deal is a way to recover some of its balance, particularly in Asia. If he can get it over the line, Obama sees it as his pivotal foreign policy gift to the nation before he leaves office. That said, it is in the interests of future administrations to close the deal as well.
Even China wins from the TPP, so they want the deal done as well. On the surface, the TPP might appear to leave China on the outside looking in. But, faster export-led economic growth in the region will give Chinese businesses plenty of new work. This will replace the domestic slowdown resulting from China's pivot from an investment-led to a consumption-led economy. A sturdier Pacific Rim region will also increase demand for Chinese infrastructure, telecom and financial service companies. The easing of cross-border regulations and tariffs will benefit Asia's biggest economy and the fastest growing e-commerce giants, such as Alibaba, emerging from there.
Deliberate on the core tradeoffs, but beware of red herrings. For the TPP, the reddest of herrings is the concern about currency manipulation by key partners. The concern is that foreign governments purposely depreciate their currency and stockpile U.S. dollars to drive up its value, boosting exports. Many U.S. lawmakers who are blocking passage of the fast track want currency manipulation clauses and punitive measures written into the agreement. The issue is that while the concern is a legitimate one in theory, trade agreements are poor instruments for dealing with the problem. In practical terms, manipulation is impossible to monitor in a systematic way; it is hard to verify and it is difficult to enforce punishments or retaliatory measures that would credibly deter such behavior. In other words, we should get beyond these distractions and focus the debate on the real issues that have practical relevance to how the agreement is framed.
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Ultimately, the TPP must be considered as part of a bigger picture. It's about playing a stewardship role along the busiest trading routes in the world and participating in Asia, from where half of the world's output will come by 2050. Turning away from what is essentially a seat at the future global high table is not an option. At the same time, forging ahead without a transparent and holistic discussion of the tradeoffs is also foolhardy.
The slow pace of the fast track is the right path to take. Let us hope that the time is used wisely.
Commentary by Bhaskar Chakravorti, the senior associate dean of international business and finance at The Fletcher School at Tufts University and the founding Executive Director of Fletcher's Institute for Business in the Global Context. Follow him on Twitter @IBGC_Fletcher.