Rescuing the free-trade deals

June 17th, 2015

June 14, 2015
The Senate’s rejection of President Woodrow Wilson’s commitment of the United States to the League of Nations was the greatest setback to U.S. global leadership of the last century. While not remotely as consequential, the votes in the House last week that, unless revisited, would doom the Trans-Pacific Partnership send the same kind of negative signal regarding the willingness of the United States to take responsibility for the global system at a critical time.

The repudiation of the TPP would neuter the U.S. presidency for the next 19 months. It would reinforce global concerns that the vicissitudes of domestic politics are increasingly rendering the United States a less reliable ally. Coming on top of the American failure to either stop or join the Asian Infrastructure Investment Bank, it would signal a lack of U.S. commitment to Asia at a time when China is flexing its muscles. It would leave the grand strategy of rebalancing U.S. foreign policy toward Asia with no meaningful nonmilitary component. And it would strengthen the hands of companies overseas at the expense of U.S. firms. Ultimately, having a world in which U.S. companies systematically lose ground to foreign rivals would not work out to the advantage of American workers.

Both the House and Senate have now delivered majorities for the trade promotion authority necessary to complete the TPP. The problem is with the complementary trade assistance measures that most Republicans do not support and that Democrats are opposing in order to bring down the TPP. It is to be fervently hoped that a way through will be found to avoid a catastrophe for U.S. economic leadership. Perhaps success can be achieved if the TPP’s advocates can acknowledge that rather than being a model for future trade agreements, this debate should lead to careful reflection on the role of trade agreements in America’s international economic strategy.

Four points seem salient.
First, the era of agreements that achieve freer trade in the classic sense is essentially over. The world’s remaining tariff and quota barriers are small and, where present, less reflections of the triumph of protectionist interests and more a result of deep cultural values such as the Japanese attachment to rice farming. What we call trade agreements are in fact agreements on the protection of investments and the achievement of regulatory harmonization and establishment of standards in areas such as intellectual property. There may well be substantial gains to be had from such agreements, but this needs to be considered on the merits area by area. A reflexive presumption in favor of free trade should not be used to justify further agreements. Concerns that trade agreements may be a means to circumvent traditional procedures for taking up issues ranging from immigration to financial regulation must be taken seriously.

Second, there needs to be a balancing of the political costs of legislating trade agreements against those of other forms of internationalism. If a small fraction of the U.S. political capital that has been devoted to the Trans-Pacific Partnership had instead gone to support reform of the International Monetary Fund and adequate funding for international financial institutions and the United Nations, these objectives could have been attained — and with greater benefits than the TPP will deliver. Trade agreements are often defended on the grounds that commerce builds harmonious ties among nations. I suspect that a rebalancing of U.S. efforts toward supporting multilateral institutions that provide financial support for other countries, and away from intense negotiations that demand that those countries change their domestic policies, would help enhance U.S. prestige and influence in the world.

Third, there needs to be careful consideration going forward of the ramifications of trade agreements that include some countries while excluding others. Where the grouping is natural, such as with the North American Free Trade Agreement, or where it reflects a clear political strategy, as with the U.S.-Colombia or U.S.-Jordan agreements, the argument for this approach is much stronger than where there are no obvious criteria for which countries are included. Political necessity has in recent weeks led advocates to increasingly aggressive formulations about how the TPP enables us to gain advantage at the expense of China. We may come to regret this provocation. Certainly, it will be important down the road to consider China’s possible membership in the TPP on terms no different from those applied to others.

Fourth, the global economic challenge we face today is profoundly different than it was a generation ago. Then, just after the Cold War and the Latin American debt crisis, with Asia’s China-led renaissance in its early stages, the challenge was to enable new markets to emerge with the potential for profound benefits to their citizens and the global economy. Trade agreements that encouraged the adoption of market institutions in developing economies and enhanced those countries’ access to the industrial economies were crucial to creating a truly global economy.

Today, we have such an economy, and it has supported the greatest economic progress in the history of the world in emerging markets and is working spectacularly well for capital and a cosmopolitan elite that moves easily around the world. But being pressed down everywhere are middle classes who lack the wherewithal to take advantage of new global markets and do not want to compete with low-cost foreign labor. Our challenge now is less to increase globalization than to make the globalization we have work for our citizens.
None of this is to suggest an end to trade diplomacy. Rather, it is to suggest that such talks must be only one component of a broader approach that has as primary stakeholders not just global companies but also those concerned with economic equity, protection of the environment, opportunities for workers to migrate and financial stability. If the TPP is to be secured, there must be clear signals that international economic diplomacy will turn to these concerns.