Death of the TPP

Earlier this week, President Trump formally withdrew the United States from the Trans-Pacific Partnership (TPP) trade deal.  Since the agreement never took effect and, what is more, was declared a non-starter months ago, Trump’s move has hardly changed reality.  What matters now is the president’s next move.  There, the possibilities remain remarkably open.

Though nothing has changed, Beijing no doubt looks on the decision with pleasure.  The agreement among twelve Pacific Rim countries had pointedly excluded China and was as much a way to resist Chinese economic hegemony in Asia as it was an effort to liberalize trade among the signatories.  No doubt this is why Japan, to secure the deal, made agricultural concessions that it has steadfastly resisted for decades.  Whether TPP would have been effective as a way to hem in China will remain an open question, but it is now one that China no longer has to answer in its pursuit of bilateral and multilateral trade arrangements, as well as its bullying in the region.  Vietnam, no doubt, is most disappointed that the TPP has died.  It had openly hoped that the deal would gain it U.S. investments previously sent to China, though it is likely that Vietnam’s growing competitive advantages over China will secure those monies even in the absence of the TPP.

For those who like to wonder what might have been, it will now forever remain a mystery whether TPP would have helped or hurt the U.S. economy.  The great complexity of the agreement’s 30 chapters spread over 5,600 pages of text had always left considerable ambiguity over its likely impact.  The World Bank, the U.S. International Trade Commission, and the Peterson Institute for International Economics had each concluded that the agreement would benefit the economies of the signatories but only marginally, adding at most fractions of a percent to real annual growth rates.  Other studies were more skeptical.  One produced at Tufts University concluded that the TPP would cost the United States almost half a million jobs.  Two Nobel economists, Joseph Stiglitz and Paul Krugman, separately characterized the deal as primarily benefiting moneyed interests.  Other academic and business criticisms of the deal pointed out that it provided no means to prevent currency manipulation, which, these emphasized, remains the primary way nations these days unfairly influence trade.

The agreement now gone, the issue of the moment is Trump’s next direction.  Since it is highly unlikely that he will attempt to negotiate new multilateral arrangements or twelve bilateral agreements, he would seem to have two options.  He could give up entirely on efforts at trade liberalization, as much of his campaign rhetoric suggested he would, or he could approach trade in a less structured way, a tack he may have suggested implicitly with his dismissals of trade treaties as something other than free trade.

On this last point, there is room for a measure of optimism that Trump, wittingly or not, leans toward the thinking of a once prominent group of trade economists.  These differ violently with the media’s easy characterization of trade deals as a means to trade liberalization.  They point out that any of these deals, bilateral, trilateral, or multilateral, may liberalize trade among the signatories but otherwise exclude many more economies than they include.  In many cases, they merely enlarge the area practicing protection.  By effectively closing out most of the world, exclusive trade agreements deny all, those inside the agreement and outside it, the greatest benefits of trade.  Unlikely as it seems now, Trump may, in his turn away from trade deals, have taken on this sort of reasoning.  He might even bring U.S. trade policy back to its earlier stance from the quarter century following World War II, during which time the country signed no exclusive trade deals but rather pushed for the general removal of trade barriers across the globe.  That effort bore fruit in rapid growth for both the U.S. and the world economy.  The world has changed since then, of course, but there is promise if Trump, having rejected the TPP, takes this direction.

If, as probably seems more likely at the moment, Trump simply gives up on trade promotion and turns to protectionist measures, then economic prospects dim.  As always when a nation uses tariffs or other means to protect domestic production from foreign competition, it causes all sorts of hardship elsewhere in the economy.  By raising costs or constraining supplies to industries that otherwise depend on imports for their production, the protection accorded one area causes cutbacks and layoffs elsewhere.  At the same time, efforts to stem the flow of cheap imports raises living costs throughout the economy and reduces living standards accordingly, often most severely among the classes the protectionists most want to help.  Should Trump’s obsession with lost jobs in one place prompt him to go this route, the country may find itself facing more not less hardship.

Trump’s unpredictability has no doubt served him well as a negotiator.  At the moment all the country knows is that he has said “no” to the TPP and its like.  As for what he might say “yes” to, the best the country has is hints.  Since so much depends on it, people might sleep better and plan more effectively if he were a little less inscrutable.

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