(What’s Left of) Our Economy: Obama’s TPP Case is Staler than Ever

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ADB, AIIB, APEC, Asia Pacific Economic Cooperation, Asian Development Bank, Asian Infrastructure Investment Bank, China, environmental standards, export-led growth, exports, Free Trade Area of the Asia Pacific, FTAAP, Japan, labor standards, NAFTA, North American Free Trade Agreement, Obama, RCEP, Regional Comprehensive Economic Partnership, SOEs, state-owned enterprises, TPP, Trade, Trans-Pacific Parternship, World Bank, {What's Left of) Our Economy

Maybe President Obama believes that repeating even the most laughably off-base contentions endlessly will make them true? Or convincing? It’s hard to look at his new Washington Post op-ed urging passage of his Pacific Rim trade deal and conclude anything else. The article makes clearer than ever that the Trans-Pacific Partnership (TPP) makes sense for the United States only if Americans ignore everything known about the agreement itself, about U.S. trade with the eleven other signatories, and about the region’s economics and commerce.

The President’s fraudulent case for TPP starts with his first claim – that “some of our greatest economic opportunities abroad are in the Asia-Pacific region.” Trouble is, as I’ve noted, the only truly fast growers on the list of TPP countries are economies like Vietnam and Malaysia, whose growth depends on not only exporting, but on amassing large trade surpluses. They lack both the capabilities and the intention of becoming significant net buyers of U.S.-origin goods and services. Compared with the United States, most of the other TPP countries are growth laggards.

Similarly, Mr. Obama’s description of the proposed TPP zone as representing a whopping 40 percent of the global economy ignores how the American economy represents more than 60 percent of total TPP area output. Moreover, the United States already has negotiated trade deals with many of the largest signatories, notably Australia, Canada, and Mexico. So Americans have long reaped nearly all of whatever benefits the President argues will result from this exercise in trade expansion.

No more credible is Mr. Obama’s insistence that the TPP will benefit America by enabling the United States to influence writing the rules that govern regional commerce rather than permitting Chinese-led arrangements shape this environment.

After all, as critics like Republican presidential front-runner Donald Trump has pointed out, China already stands to gain from the TPP, thanks to loose origin requirements that permit free or freer trade of goods with high levels of content from non-TPP countries. And since China for decades has been a key node in the multinational production chains that bind together so many Asian economies, much of this non-TPP content will obviously be Chinese.

Further, nothing could be clearer than the determination of the TPP countries to avoid making either-or choices when it comes to rule-writing exercises for East Asian commerce. No less than six TPP signatories – including Australia and New Zealand – have signed up to participate in the Asian Infrastructure Investment Bank (AIIB) that China set up recently in part as a TPP counterweight. And although the largest by far non-U.S. TPP signatory, Japan, has so far declined to bandwagon, the Asian Development Bank (ADB) that it has traditionally co-dominated has started working actively with the AIIB. So has the World Bank.

These last two developments, by the way, mean that the United States has also decided to work with the Chinese initiative rather than continuing to oppose it, since Washington plays a major role in both institutions.

And what about the Chinese-initiated regional trade agreements about which Mr. Obama expressed so much alarm? The Regional Comprehensive Economic Partnership singled out by the president has already attracted seven TPP signatories – including Japan, along with Australia and New Zealand.

Interestingly, Mr. Obama didn’t mention a second Chinese regional trade scheme – a Free Trade Area of the Asia Pacific (FTAAP). Maybe that’s because he’s decided to cooperate with Beijing on this front, too, at least to the extent that he approved a study of the proposal under the auspices of the Asia Pacific Economic Cooperation (APEC) process in which Washington participates.

Finally, the president’s belief that the TPP will greatly boost U.S. exports through enforceable new rules remains a monument to delusion. As I’ve explained, enforcing labor and environmental standards would require an army of American officials to inspect hundreds of thousands of facilities in low-income countries like Vietnam and Malaysia. Who’s going to pay for these personnel? And that’s not even including the vast manufacturing complex that’s been created in Mexico since it joined a North American Free Trade Agreement (NAFTA) more than twenty years ago, and in which evidence abounds such provisions remain overwhelmingly ineffective.  (Hence, largely, the president’s insistence that “this time, it will be different” in TPP.)  

As for the state-owned enterprises (SOEs) whose trade-distorting activities TPP will supposedly curb, how will U.S. officials gain access to these notoriously secretive constructs and their financial records? Moreover, since low (at best) labor and environmental standards along with opaque SOEs are keys to competitiveness throughout Asia, why would the region’s TPP signatories give Washington the power to weaken these arrangements through dispute-resolution hearings?

President Obama writes that the alternative to Congress passing the TPP is “building walls to isolate ourselves from the global economy.” That’s the most pernicious trade policy and TPP myth of all. The real alternative is developing trade policies based on global economic realities, not his own fantasies about the power of mere pen strokes.

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Our So-Called Foreign Policy: Obama Ignores the Diplomacy Lesson Taught by China’s Aid Bank Gambit

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allies, Asian Development Bank, Asian Infrastructure Investment Bank, China, diplomacy, international organizations, international relations, Obama, Our So-Called Foreign Policy, power, TPP, Trade, trade agreements, Trans-Pacific Partnership, World Bank

You have to be a regular visitor to the furthest reaches of business news websites to be up to speed on the controversy over dealing with the new Asian Infrastructure Investment Bank (AIIB) China has organized. Which is a shame, because the issues involved bring up our most fundamental ideas about how international relations are actually carried out and how they should be carried out.  They show how violently many of them clash.  And they point to the dangers of learning the wrong lessons.

The bank is an institution that Beijing says will serve two main purposes. First, it will speed up lending to Asian countries for urgently needed infrastructure projects that has been slowed by concerns about adequate spending controls, environmental standards, merit-based contracting practices, and similar conditions typically attached by existing development organizations like the World Bank and the Asian Development Bank. Second, it will give Asians more control over their own destinies, because those existing aid organizations are still dominated by Western countries – and by extension the supposedly Western values epitomized by their aforementioned policies.

The United States initially opposed the AIIB’s creation. But when China pushed ahead anyway, Washington began focusing on urging its regional allies and other Asian countries, as well as prospective non-Asian donor governments, to give it the cold shoulder. Unfortunately, many of these countries have ignored U.S. wishes, too – including Britain, Germany, France, Italy, and probably Australia.

The results add up to a major setback for American diplomacy – but also a self-inflicted one. U.S. leaders have viewed the Bank’s creation as part of a Chinese master plan to ensure that the rules of commerce in the economically dynamic Asia-Pacific region are written by free market countries and therefore reflect free market norms, rather than by Beijing and other champions of more secretive, more discriminatory, and more nationalistic practices. In addition to opposing the Bank’s creation, the Obama administration also has sought to respond by concluding the Trans-Pacific Partnership (TPP) trade deal, whose provisions it believes will lock the region into a free market future, and create incentives for countries seeking to join (like China) to change their ways.

But China’s successes are just the latest reminder that Washington completely misunderstands the forces that separate the winners from the losers not only in Asian politics, but around the world. For as widely reported, even America’s closest partners are cooperating with China because the lure of Chinese economic power, and the promise of increasing access to China’s enormous actual and potential market, have proven irresistible. All maintain generally free market, and thus rule-based, economic systems at home.  But none of these governments seems concerned about entering arrangements with countries like China, which actively reject the primacy of rules and all of their corollaries, like openness, and accountability to consumers, voters, and the like.

In other words, President Obama’s focus on rule-writing is completely misplaced. Fortunately, the United States has ample power of its own. In fact, as the most important final market by far for all countries currently involved in the TPP negotiations, and for all countries hoping to join, as well as the military protector of many of these nations (and of the Europeans flocking to the AIIB), the United States should have no trouble keeping the lid on China’s influence. A simple declaration that “If you want the benefits of trade with and protection by the United States, you need to act like it,” should suffice – along of course with the determination to walk this walk.

But the most important ingredient for this strategy is a U.S. chief executive who recognizes that world affairs is still mostly jungle, not civics class. Troublingly, the record indicates that Americans won’t get one until January, 2017 at the earliest.

(What’s Left of) Our Economy: More Evidence that U.S. Trade Deals are Really Offshoring Deals

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Africa, Asia, Asian Development Bank, exports, incomes, offshoring, poverty, poverty line, third world, Trade, trade agreements, World Bank, {What's Left of) Our Economy

The U.S. trade policy front – thankfully – has been quiet lately. That means dim-looking short-term prospects that Congress will pass new fast track presidential trade negotiating authority, and new trade deals like the Trans-Pacific Partnership that are proven job- and growth-killers.

Nonetheless, these globalization measures still represent a rare point of agreement between President Obama and Congress’ Republican leaders, and the lobbying might behind such deals is still potentially overpowering. Therefore, it’s worth noting the recent appearance of more evidence refuting a prime argument made by supporters of new trade deals: that since 95 percent of the world’s consumers live outside the United States, Washington urgently needs to enable American businesses and workers access all that purchasing power to give the current recovery some real oomph.

Last March, I skewered that claim by pointing out that most of those foreign consumers, concentrated in very low-income third world countries, earn next to nothing, and therefore can’t possibly become strong consumers of U.S.-origin goods and services. This month, comparable findings from three respected sources should help bury the “95 percent illusion” for good.

The first throws buckets of cold water even on the idea that fast-growing Asia presents massive growth opportunities for the U.S. domestic economy. According to an August 20 Financial Times article, the Asian Development Bank, the World Bank, and India’s new government are seriously rethinking current official poverty lines. The former specifically has concluded that its existing $1.25 per day poverty line “was not enough to maintain minimum welfare in many parts of the region.”

Of particular interest to American trade officials, and their supporters and critics, the ADB calculated that raising the poverty threshold to a mere $1.50 per day would boost Asia’s poverty rate from 12.7 percent of its population to 41.2 percent. In other words, even without this statistical manipulation, more than one billion Asians considered to be above the poverty line, and potential customers for U.S. exports, were making only between $1.25 and $1.50 per day.

Moreover, as the Financial Times emphasized, many Asians’ incomes remain not only abysmally low, but highly precarious. Its analysis of World Bank data showed that nearly one billion people in the developing world overall were at risk of falling out of what is charitably called “the middle class.”

And as pointed out by my March article, even the meager income levels revealed in this data are present a thoroughly misleading picture of third world purchasing power. The reason: They’re measured according to a methodology known as Purchasing Power Parity – which adjusts the costs of goods and services down to the rock-bottom levels inevitably found in low-income countries. When these incomes are measured by their ability to buy products and services created at U.S. price levels, they turn out to be much lower.

The day before, the FT also (unintentionally) refuted a sub-myth of the 95 percent illusion – the belief that sub-Saharan Africa could well be the world’s most exciting future growth market. In an August 19 article, the paper reported findings by Standard Bank that the region would by 2030 see “ a burgeoning consumer market for items such as vehicles, insurance policies, property and health products” because of a tripling of its middle class households.

This does indeed sound pretty exciting, until it becomes clear that this tripling would bring the number of sub-Saharan Africa’s middle class households to only 22 million. That’s only slightly larger than the population of greater New York City today. And even the wealthiest of these African households would be earning a mere $42,000 annually. The poorest would be making only one-fifth that much.

Finally, the Gallup polling organization last week released a survey showing that fully 29 percent of the world’s working population is self-employed – and that far from representing “a positive sign of proactive entrepreneurial energy, high rates of self-employment can often signal poor economic performance.” Even more important: “The self-employed are three times as likely as those who are employed full time for an employer to be living on less than $2 per day.” And self-employment rates are by far the loftiest in highly populous developing countries.

These statistics reinforce what should have been clear to American leaders, the media, and the public for decades. The push for trade agreements fueled so prominently by multinational companies has almost nothing to do with finding new foreign consumers for American exports, and nearly everything to do with finding penny wage workers and other super-cheap factors of production for offshoring-happy corporations.