Bad News Mounting for TPP

For Trade Deal, Bad News Keeps Mounting

Election-year jitters and bad economic signs cloud outlook on Capitol Hill for Trans-Pacific Partnership trade pact.

By David Dayen

This week, emissaries from 12 Pacific Rim countries will meet in New Zealand to sign off on the Trans-Pacific Partnership (TPP), one of the most ambitious trade deals in history. But when the ministers sign the agreement in Auckland—presumably after authorities finish rounding up “known activists” in their bid to fend off protests—it will represent the beginning, not the end, of the fight. The 12 nations must now ratify TPP, without amendment, through their national legislatures.

Members of Congress, especially those up for re-election this year, do not relish that scenario. Ohio Senator Sherrod Brown, a Democrat, told NPR this month, “As Trent Lott used to say, you don't vote on a trade agreement in an even-numbered year.” Translation: Corporate-friendly trade deals that ship jobs overseas don’t tend to sit well with voters. Even lawmakers who support free trade would rather not trumpet that fact at election time.

Indeed, all the highest-profile candidates for president—Ted Cruz and Donald Trump on the right and Hillary Clinton and Bernie Sanders on the left— have publicly opposed TPP. While such promises may not amount to much—then-candidate Barack Obama vowed to oppose trade deals in the mold of TPP when he ran for office in 2008—they complicate prospects for approval in Congress. This administration readily acknowledges that TPP is not a slam dunk on Capitol Hill. And by the time the next administration takes over—even if Obama’s successor reverses course and endorses the pact—public support for TPP may sink even lower, and other countries may pull out or force a renegotiation.

In fact, the argument for ratification is getting steadily weaker. The first two economic analyses of the agreement, which the administration wants to use to bolster its case, drew fire as misleading and incomplete. The first, from the World Bank, looked only at the economic gains from exports, with no mention of potential harms. This is like determining the outcome of a baseball game by only looking at one team’s score. And even from that one-sided perspective, the U.S. gains were tiny—just 0.4 percent of GDP by 2030, the lowest of any party to the agreement. The World Bank report also measured only cumulative GDP gain by 2030—a model that’s calculated to bring back what sounds like a big number, but that papers over TPP’s much smaller impact when measured annually.

Another study by the Peterson Institute for International Economics (PIIE) employed the same trick, projecting only cumulative U.S. gains by 2030. Under that rosy scenario, the PIIE study promises $131 billion in increases to real incomes over the next 15 years. But as economist Dean Baker points out,  “The projections imply that, as a result of the TPP, the country will be as rich on January 1, 2030 as it would otherwise be on April 1, 2030.”

Even more misleadingly, the Peterson study employs a model that “assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries,” according to page 7 of the report. The study’s fanciful premise is that lifting tariffs on multiple countries that make goods more cheaply than the U.S. will do nothing to change the trade imbalance.

The Peterson study doesn’t even list the increase in imports for the United States, only exports. But by its model design, those two must be equivalent. This led to a lot of headlines about how the study touted the TPP’s trade benefits but not its drawbacks. Even the Peterson study’s best-case scenario could not avoid this conclusion: The U.S. would lose 121,000 manufacturing jobs under the deal. All those jobs would be replaced, mostly in the lower-paid service sector, the report claims. But that’s mainly because the model automatically assumes no net job loss in the U.S., a highly dubious scenario.

The administration is trying to sell the deal not only with flawed studies, but against the backdrop of troublesome news. The announcement by TransCanada that it would sue the U.S. over the administration’s rejection of the Keystone XL pipeline, using the investor-state dispute settlement (ISDS) process in the North American Free Trade Agreement (NAFTA), casts a pall over the debate. At issue is the threat that corporations will use an extra-judicial process to extract billions in payments for the decisions of the U.S. government. The congressional repeal in December of the country-of-origin labeling rule known as COOL, following trade sanctions imposed by the World Trade Organization, underscores this danger. Faced with the threat of paying out billions in trade disputes, lawmakers would clearly rather reverse U.S. policies to the benefit of the affected corporations.

But the biggest blow to the TPP may be Ford Motor Co.’s abandonment of the Japanese market after 42 years, just when the Pacific Rim trade pact was supposed to open Japan up to foreign competition. “It has become clear that there is no path to sustained profitability, nor will there be an acceptable return over time,” said Ford spokeswoman Karen Hampton in a statement, suggesting that no TPP provisions would help.

Indeed, the trade agreement hinders U.S. automakers’ ability to sell parts and products abroad, to the benefit of China. TPP’s weak rules of origin would allow a car to be described as “Made in America” even if only 45 percent of its parts were domestically sourced. The deal would give Japanese automakers expanded access to global markets, and the ability to export domestically from their series of factories already in the U.S.

The TPP also offers no relief from currency manipulation measures that Japan has taken to protect its auto industry. “Japan is the most closed auto market in the world, and currency manipulation only further stacks the deck against American workers and automobiles,” said House Democrat Dan Kildee, of Michigan, in November.

By themselves, none of these problems spells doom for the TPP. But the drip drip of discouraging news builds a narrative that the agreement will not benefit American jobs or open markets, and will give corporations new ammunition to fight for their own interests.

And members of the large coalition opposing TPP—environmentalists, labor unions, progressive groups, even small business owners—are sounding chipper. “We are increasingly confident that the TPP will be stopped,” said Shane Larson, Legislative Director for the Communications Workers of America. “As the American public continues to see devastated communities, lost jobs and declining incomes the last thing they want is a massive trade agreement that will only make it worse.”

More studies are still to come, like an International Trade Commission assessment expected in May. Business leaders lined up unanimously behind the deal could help eke out the required votes—though many Republicans appear lukewarm toward advancing another piece of Obama’s legacy. There’s been talk of a lame-duck session to vote on the deal after Election Day—conveniently averting the risk that Congress would be held accountable.

Still, Capitol Hill seems exceptionally chilly toward the TPP these days. When Obama mentioned TPP in his State of the Union address—one of the only policies he exhorted Congress to pass in the speech—only his cabinet members rose to applaud. Lawmakers’ muted reception was a fitting signal that, even if they are inclined to approve a deal that privileges corporate profits over American workers, they certainly don’t want to broadcast that to voters.