It is always unfortunate when our solons on Capitol Hill abandon the pursuit of sensible policies in favor of re-election politics. It is particularly regrettable when this happens at a time when international agreements are pending whose failure could do great harm not only to the world economy but also to US national interests.
At issue are two ambitious trade liberalization plans – the Trans-Pacific Partnership or TPP (linking the United States, Japan and ten other Pacific rim countries) and the Trans-Atlantic Trade and Investment Partnership (TTIP, between the US and the European Union). Also in question is the so-called Trade Promotion Authority, or fast-track authority, enabling the President of the United States to negotiate such pacts.
Every occupant of the White House since the 1930s has had this power and the TPP and TTIP offer the best opportunity in decades to liberalize trade. History makes it amply clear that a country that allows itself to fall prey to narrow geographic or business or labor interests and shrinks from global competition is choosing national decline. So, it has been stunning that President Obama’s own Democrats should have been the ones instrumental in blocking the fast-track legislation in the Senate, and that they should have done so with decidedly erroneous reasoning.
The trade pacts would lead to deals like others in recent years, one heard, “that have cost us millions of decent-paying jobs and have led us to a race to the bottom where American workers are forced to compete against workers in low-wage countries who are making pennies an hour.” Or “while three years in the Trade Promotion Authority bill may be appropriate for foreseeable trade agreements, there is unease with a process that would provide carte blanche for agreements unknown, for countries to be determined, for a time in perpetuity.”
Some Senators expressed worries that fast-track authority would ease policy changes not just for Mr. Obama, but also for a future president, conceivably a Republican. Others warned that the legislation could allow a future POTUS to unravel rules imposed on Wall Street after the financial crisis. All this is utter nonsense. The latest development is that the US Senate, apparently, has cleared a path for fast-track to pass, but only to the accompaniment of further criticism claiming that “Senate democrats are abandoning American workers concerned that their jobs may be shifted overseas due to unfair trade related to currency manipulation nations in the Trans-Pacific Partnership. Doing a trade bill without monetary policy – the primary mechanism nations use to make their exports cheaper – ensures that the TPP is neither free nor fair.”
This suggests that there are a number of myths to be cleared up that have been allowed to fester and distort views for a long time. To begin with, global trade will continue with or without US involvement. One can argue at length whether on a net basis such pacts as NAFTA have cost the US more jobs than they created for it – there are so many different forces at work that it is always misleading to pin the loss or gain of a manufacturing position on an international trade agreement – but it is clearly better to make sure that trade is fair, with partners on both sides making comparable concessions, than that it is restricted.
Where the TPP is concerned, one needs to keep in mind that for the average country involved there is no longer much to gain from lowering Customs tariffs any further. Since the 1960s, the average world tariff has already been more than halved to under 7%. In the US, Japan and the EU, tariffs average below 3%. Moreover, the TPP is not about manufacturing, a sector where globalization has become an accomplished fact. Rather, it is about agriculture and services, where the US competitive edge is the strongest.
Second, fast-track is nothing like a way to cut Congressional concerns out of trade negotiations. Under this authority, Congress is in a position to set objectives for the administration to seek during the bargaining. It also provides transparency, oversight and accountability for the legislators to review ongoing trade negotiations. When this process is completed and agreements have been fully vetted, Congress gets an up-or-down vote to accept or reject the package. This is critical because trade partners will not put their best offers on the table if they know the US lawmakers can then amend the agreement, so the vote has to be yes or no, not on amendments that amount to renegotiation. But, of course, Congress can always say no.
Third, to insist that trade promotion authority be granted only with a currency amendment as an integral part, demanding that pacts such as the TPP and the TTIP include provisions penalizing countries that engage in currency manipulation, is a inane proposition, a push that could have excluded the US altogether from both these freer-trade drives. US trading partners certainly would not tolerate a provision that would let the US punish them for currency movements that are often beyond their control. Sharp exchange rate movements are common these days. For the most part, they are a reflection of a country’s monetary policy and of capital flows.
So, who is the US, with its massive “quantitative easing,” undertaken explicitly with an eye on lowering the dollar’s exchange value, to tell others it is going to slap punitive tariffs on their goods because they “manipulate” their currencies? Just because the US manipulation did not work out the way it was intended? And would it be left up to the US government and industry lobbyists to determine when a foreign currency is “undervalued” and whether there has been manipulative intent? Other countries would be quick to adopt similar measures, and it is doubtful that US exporters would be happy to find themselves confronted with a slew of punitive tariffs the next time the dollar weakens in the exchange markets.
Withal, it is to be welcomed that the US Senate at last has found a way to provide a path forward for the fast-track bill. But the measure’s fate in the House is still far from assured, and even if it were to pass there fairly quickly, it is now questionable whether enough time is left for a Pacific and/or European deal to be clinched and presented to the US Congress for the up-or-down vote by the end of this year, before the height of the 2016 presidential campaigning further complicates politics.