Battle Over TPP getting hot...

The Battle Over the Trans-Pacific Partnership and ‘Fast Track’ Gets Hot

by Dean Baker

President Obama must be having trouble getting the votes for fast-track authority since the administration is now pulling out all the stops to push the deal. This has included a press call where he apparently got testy over the charge by critics that the Trans-Pacific Partnership (TPP) is a secret trade deal.

Obama insisted the deal is not secret, but googling “TPP” will not get you a copy of the text. Apparently President Obama is using a different definition of “secret” than the ordinary English usage.

But that wasn’t the only fun in the last week. The administration got 13 former Democratic governors to sign a letter boasting about the jobs generated by the growth of exports. The letter noted that exports had added “$760 billion to our economy between 2009 and 2014 – one-third of our total growth.” It neglected to mention that imports had grown even faster, diverting $890 billion in demand away from the domestic economy to foreign economies.

Contrary to what the governors were claiming in their letter, trade was a net negative to the tune of more than $130 billion over this five year period. Instead of adding jobs, the growing trade deficit was drag on growth, slowing job creation and putting downward pressure on wages. The growth in the trade deficit over this period has the same impact on the economy as if people pulled $130 billion out of their paychecks each year and stuffed it under their mattress.

Secretary of State John Kerry also got into the act with a speech that talked about the importance of the world economy. He told his audience that most of the growth in the future will be outside of the United States and that we will be missing huge markets if we don’t have an open economy.

This is true, but it has about as much relevance to the TPP and fast track as an analysis of the Washington Wizards’ playoff prospects. The United States already has almost $4 trillion in trade annually (at 23 percent of GDP). This figure has been rising rapidly. It will continue to rise rapidly whether or not Congress approves the TPP. The fact that trade is good has nothing to do with whether Congress should approve the TPP.

This is a lesson that was apparently also lost on Harvard Economist Greg Mankiw. In a New York Times column last week Mankiw argued for the congressional approval on fast-track authority based on the claim that all economists agree that free trade is good.

In fact, not all economists agree that all reductions in trade barriers are good. But more importantly, the TPP is not primarily about reducing trade barriers. The TPP is essentially a pact in which the Obama administration invited industry representatives to get together a wish list and see what they could impose on the other parties to the deal.

Since formal trade barriers are already low, very little time was spent on cutting tariffs or ending quotas. Most of the deal is about imposing a business-friendly regulatory structure. The rules in the TPP can be used to challenge any consumer, labor or environmental regulation approved at the state, local or federal level. The enforcement powers will rest with an extra-judicial dispute settlement mechanism that will impose penalties that are not subject to appeal.

On this issue President Obama’s assurance that the TPP will not challenge financial regulation or other types of regulation are worthless. He has no idea what sort of people will be appointed to these tribunals in future years. The tribunals are not bound by US law or even the precedent of rulings from other tribunals. Does President Obama really want us to believe that he knows a President Bush or President Walker won’t appoint people who will use the tribunals to undermine environmental and labor regulations?

The absurdity of conflating the TPP with “free trade” is brought out by the fact that its biggest impact may well be from increasing the strength of patent protection, especially in the case of prescription drugs. Patents are government-granted monopolies. They are the opposite of free trade. The TPP will make them stronger and longer raising drug prices. This increase in protectionism is a drag on growth and will slow job creation.

The Obama administration has punted in the one area where a trade deal may have had a major positive impact. The deal will not have any rules on currency. The main reason the United States continues to run large trade deficits is that our trading partners deliberately prop up the dollar against their currencies. This makes their goods relatively cheaper and ours more expensive.

The Obama administration could have made currency rules front and center in a trade deal, but that would have only made sense if its main concern was jobs and workers. Instead we have a deal that is a piñata for the corporations who were at the table, and who the Democrats are counting on to give generously in the 2016 campaign.

This doesn’t look very pretty to the rest of us, which is why the Obama administration will have to play fast and loose with the truth to get the TPP through Congress.