The Unseemly Scuffle over Trade

The Trans Pacific Partnership (TPP) evolved from discussions starting in 2005.  The goal was to promote freer trade through treaties including in agriculture, intellectual property, services and investments, where the US has a comparative advantage.  Any resulting treaties would ostensibly allow our trading partners to import in areas where they excel, while Americans export goods and services where we have an economic advantage.  The partners in the proposed partnership are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.  Note that China, Korea, and Russia are conspicuously absent. While the House has just voted to advance the Trade Promotion Authority (TPA), many obstacles remain getting this legislation fast-tracked into law.

One problem is that there are too few moderates on both sides of the aisle.  The bill to enable trade negotiations is the TPA, which deputizes the president to negotiate trade agreements that “meet parameters and fulfill objectives spelled out by Congress…Before any agreement is put to a vote in Congress, the final details are … made available to the public for a minimum of five months.” Legislation to implement agreements can be handled with an up or down vote.

Over the past few months, the public has been fed a smorgasbord of hyperbole, misinformation, and subterfuge about both TPA and TPP. But the truth is simple. On the upside, corporations will favor freer trade when it allows them to propose sales into new markets or into markets where prior barriers have been lightened.  US consumers will benefit from lower import prices and some US workers will benefit from higher employment in companies that successfully increase their exports.

On the downside, freer trade will be opposed by segments of US industry or US workers whose productivity is inferior to that exhibited by prospective trade partners.  As well, there are some who hate free markets because they do not address their obsession with income equality.

Many believe the economic advantages and disadvantages of the trade legislation would be modest.  But TPP has dimensions beyond economics.  The economic bonds strengthened over time by active trade partnerships are likely to create allies that help in the inevitable frictions with US rivals such as Russia and China.

The TPP backers believe they can increase freer trade by promoting regulatory compatibility among trading partners.  If they have in mind “harmonizing” regulations, it could actually lower economic freedom by “regulating upward” and burdening both parties are resulting in a lower level of welfare.

An alternative for achieving compatibility would be a strategy of “mutual recognition.” That would allow trading partners to tolerate each country’s established trade practices and regulations.  It would take less time to get started.  Where experience reveals that the regulatory mismatch is too cumbersome, those partners should consider reducing their regulatory complexity.  In practice however, it appears the TPP promoters favor harmonization of the partners’ trade regulations, and that will reduce the benefits from trade.

TPA and TPP seem to have enough safeguards that they will not tie Congress’ hands.  Furthermore, they are probably a small net economic positive and a smart initiative that may strengthen a few international friendships.  Compared with many of the high spending, low benefit ideas during the great recession, TPA and TPP deserve a welcome on the Hill.

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