As counselor to the secretary of Commerce in the Reagan administration, I was involved in a number of trade negotiations, including the so-called MOSS (market-oriented sector-selective) talks. Some veteran negotiators waggishly renamed those negotiations — to paraphrase in family friendly terms — “more of the same old stuff.” And that's what President Obama called for in his State of the Union proposal for completion and adoption of the Trans-Pacific Partnership free-trade agreement, or TPP, for the Asia-Pacific region.
The president, unfortunately, doesn't know much about the history of U.S. trade deals, but his proposals are being touted by many who do and who should know better about this one.
These supporters make two major arguments. One is that the trade pact would create lots of new jobs and raise American incomes and living standards. The other is that it would strengthen U.S. alliances in Asia while curbing Chinese influence.
Rep. Charles Boustany Jr. (R-La.) and former U.S. Trade Representative Robert Zoellick, for example, wrote in a December op-ed article that “workers who produce exports earn, on average, about 18% more” than the average manufacturing wage. They add that the TPP may open foreign markets for business services — such as finance, software and architecture — that employ more workers than manufacturing at 20% higher earnings. Finally, they quote the Peterson Institute for International Economics as estimating that new trade deals could increase the average American family's income by $3,000.
Of course, figures don't lie, but analysts often figure. Can all workers choose to work for manufacturing exporters? If exports are such good business, why has the U.S. manufacturing trade deficit soared over the last decade?
As Robert Scott of the Economic Policy Institute wrote in July, “U.S. manufacturing has lost 5.5 million jobs since 1997, due in large part to the growth of U.S. goods trade deficits with China and other countries.” And those service industry wages don't look so high if the few thousand megamillionaires in financial services are factored out.
Further, the same Peterson Institute that estimates big family-income gains also estimates that the TPP would add only 0.13% to U.S. GDP by 2025, while the U.S. Department of Agriculture says that abolition of all TPP country tariffs and tariff rate quotas to zero would add nearly zero “percentage difference in real GDP.” Others, such as EPI, the Economic Strategy Institute and Public Citizen predict that a TPP deal would result in further U.S. job losses and reduced earnings for the vast majority of Americans.
Instead of forecasts, let's look at facts. Over the last 35 years, the U.S. has brought China into the World Trade Organization and concluded many free-trade agreements, including one with South Korea three years ago. In advance of each, U.S. leaders promised the deals would create high-paying jobs, reduce the trade deficit, increase GDP and raise living standards. But none of these came true. In fact, the U.S. non-oil trade deficit continued to grow, millions of jobs were offshored and mean household income has hardly risen since 2000. And economists overwhelmingly agree that rising U.S. income inequality is being driven in part by international trade.
Of course, those promoting the TPP know all this, which leads them to make a backup argument, namely that the deal would strengthen security ties between the U.S. and its Asian allies and thereby curb the increasing power and influence of China.
For instance, a recent Foreign Policy article argued that the TPP would reinvigorate the economies of America's Asian allies and that China would subsequently be “dwarfed” by the economic power of the TPP countries harnessed together. It is ironic that those now calling for the TPP as a bulwark against Chinese power are precisely the same people who most vociferously promoted China's admission to the WTO, a step that greatly spurred the growth of China's economy and China's geopolitical power.
In any case, the ever-closer linking of the U.S. economy to those of the TPP countries over the last 35 years has not prevented the rise of Chinese power, nor has it deterred U.S. trade partners and allies from developing ever closer ties with China. Further, the GDP of the combined TPP countries already dwarfs that of China. But this means nothing. The TPP is not going to bring together nations such as Mexico, Peru, Chile, New Zealand, Australia, Singapore, Malaysia and Brunei to gang up against China. That is just not going to happen.
Thus the TPP fails on both economic and political grounds. It is no more than a late lament for the dying age of free-trade agreements.
Clyde Prestowitz is president of the Economic Strategy Institute and the author most recently of "The Betrayal of American Prosperity." He served in the Reagan administration and was vice chairman of President Clinton's Commission on Trade and Investment in the Asia-Pacific Region.
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