(What’s Left of) Our Economy: The Latest Bogus Case for TPP Revival

Tags

Barack Obama, Canada, China, exports, George W. Bush, Mexico, non-tariff barriers, The Wall Street Journal, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The case for the Trans-Pacific Partnership (TPP) trade deal pushed by former Presidents George W. Bush and Barack Obama, but killed by President Trump, was never serious. For example, America’s economy represented nearly two-thirds of the vaunted new free trade zone the Pacific rim deal would have represented. Many of its largest economies (notably Canada, Mexico, and Australia) were already connected with the United States by trade liberalization agreements. These and most other TPP members have depended heavily on amassing trade surpluses to generate growth, casting major doubt as to how widely they’d open their own domestic markets. And despite being widely touted as a counter to China’s growing economic and military influence in the region, the deal contained an immense back door for Chinese products in the form of sloppy rules of origin.

Now the Wall Street Journal editorial board has taken the bogus pro-TPP case another fact-free step further. It’s claiming to have unearthed evidence that Mr. Trump’s decision is already hurting American exporters. Except the only “evidence” presented is from a single Japanese study. And its findings consist not of developments that have already taken place, but of projections of what it thinks might take place.

Everyone is of course entitled to an opinion – or a projection. And maybe Tokyo’s National Graduate Institute for Policy Studies knows something about such forecasts that has completed eluded the U.S. Government – which has a terrible record predicting the results of trade deals. But everyone is also entitled to ask why the Wall Street Journal didn’t look at what is already known about export flows between the United States and its would be TPP partners since the Trump decision.

According to the U.S. International Trade Commission’s Trade Dataweb, year-to-date 2016-2017, America’s goods sales to these countries have grown by 5.36 percent. That’s somewhat less than the 6.38 percent increase in total, global American merchandise exports during that period. But not a lot less.

Moreover, this small discrepancy is anything but unheard of. Since the current U.S. economic recovery began (a period during which the TPP was being considered in Washington and all the other capitals that sought the agreement), America’s global goods exports have topped their TPP counterparts in two years, and the reverse has been seen in three years. In two other years, merchandise exports to both groups fell – both times by greater percentages for TPP exports. Moreover, the differences in none of the seven full years for which data exist is substantial.

In other words, the numbers so far support the observations that many of the biggest TPP member economies comprising the smallish non-U.S. TPP trade area (along with smaller economies like Singapore, Chile, and Peru) already have reached trade agreements with the United States – and that optimism regarding a needle-moving U.S. export boost has never been justified.

Moreover, neither the Journal editorialists or any other TPP revivalists has grappled seriously with any of the other reasons for exports skepticism. These range from the prevalence in the non-U.S. TPP economies of the kinds of non-tariff trade barriers that American trade diplomacy has never eliminated or even significantly reduced, to the related likelihood that most of the TPP provisions concerning these barriers are unenforceable.

Nor have pro-TPP voices explained why other agreement provisions – such as a yet another dispute-resolution system that would override American trade laws, plus that back door for China and other non-TPP countries – wouldn’t have supercharged U.S. imports and further swelled an already bloated, trade deficit.

The Journal‘s editorial ends with the hope that “If the 11 remaining members hold out for a U.S. return, it’s possible that rational American self-interest will prevail over protectionist bluster.” But its fact-free missive makes clear that it’s the remaining TPP supporters in the United States that urgently need to display a learning curve.

(What’s Left of) Our Economy: Trump’s NAFTA Rewrite Blueprint is an Encouraging Start

Tags

bubbles, Buy American, Canada, dispute resolution, environmental standards, GATT, General Agreement on Tariffs and Trade, government procurement, labor standards, manufacturing, Mexico, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, reciprocity, rules of origin, tariffs, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, value-added taxes, VATs, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration is out with its detailed statement of renegotiation objectives for the North American Free Trade Agreement (NAFTA), and if you’ve favored turning U.S. trade policy from an engine of debt-creation and offshoring into one of production-fueled growth and domestic job creation, you should be pretty pleased.

As critics have noted, yesterday’s statement does lack numerous important details about how the administration intends to achieve its goals, and some of these omissions (as will be explained) raise legitimate questions about the depth of the president’s commitment to these changes. But the statute requiring the release of such statements doesn’t mandate disclosure of every – or any – specific strategy for reaching these goals. Moreover, the talks haven’t even started, and these tactics naturally tend to change with circumstances. So those accusing the administration of excessive vagueness should start holding their fire.

As indicated in yesterday’s post, the most important change needed in NAFTA is the addition of teeth to the agreement’s existing rules of origin – the requirements that goods sold within the NAFTA free trade zone comprised of the United States, Mexico, and Canada be made overwhelmingly of parts, components, and materials made inside the zone.

After all, manufacturing dominates trade not only inside NAFTA, but between the NAFTA countries and the rest of the world. Without imposing teeth, non-NAFTA countries will have no meaningful incentive to invest in new NAFTA-area facilities to produce the intermediate goods that comprise the content of final products, like automobiles. And the economies, businesses, and workers in the three countries will be denied immense opportunities to boost production and employment. Indeed, this is precisely this opportunity that’s been missed under the current NAFTA.

It’s difficult to imagine these teeth taking a form other than steep tariffs on goods imports from outside NAFTA, and the Trump blueprint never mentions that “t” word. But it does contain a call to “Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.” And it specifies that these improved origin rules must “incentivize the sourcing of goods and materials from the United States and North America.” How could anyone supporting more U.S. manufacturing production and employment not be heartened?

Also impressive – as widely reported, the administration has prioritized preserving America’s ability to “enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws” chiefly by eliminating the NAFTA provisions that established international tribunals as the last word in resolving trade complaints among the signatories, rather than the U.S. trade law system. The Trump administration is also seeking to reestablish America’s unfettered authority to impose “safeguard” tariffs on imports from Mexico and Canada when they begin to surge into the United States. So if you’re worried that NAFTA and other recent U.S. trade agreements have needlessly undermined American sovereignty, this blueprint is for you.

Similarly, critics have long complained about NAFTA’s overriding of the Buy America provisions of U.S. public procurement regulations aimed at maximizing the American taxpayer dollars used to purchase goods and services for government agencies. The Trump strategy laid out in the blueprint seeks to preserve these and other key domestic preference programs.

It’s true, as is being contended, that in areas ranging from promoting high labor rights and environmental standards, to dealing more effectively with the trade distortions created by state-owned enterprises (SOEs), the Trump NAFTA blueprint looks a lot like the Trans-Pacific Partnership (TPP) trade deal that the president condemned as a candidate and withdrew from on his first day in office.

It’s just as true, however, that formidable obstacles were bound to prevent effective enforcement of those proposed TPP rules. These loom as large as ever – notably, the huge numbers of U.S. government officials that would be needed to monitor the even huge-er Mexican manufacturing sector on anything close to an ongoing basis. But the final TPP text demonstrated beyond reasonable doubt that the Obama administration failed to address these concerns adequately. Maybe the Trump administration will come up with viable answers.

Finally, the Trump NAFTA blueprint contains two conceptual objectives that have never been prioritized since the current world trading system was created shortly after World War II, and that trade policy critics should be applauding vigorously. The first is the endorsement of reciprocity as a lodestar of American trade strategy. The second is an emphasis on reducing America’s mammoth trade deficits.

Although reciprocity (i.e., America opens its markets to certain trade partners only to the extent that their markets are open to U.S.-origin goods and services) seems like an uncontroversial trade goal for Washington to seek, and is often presumed to be the goal, nothing until now could be further from the truth. In particular, the foundational principles of the world trade system under the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO) are national treatment and non-discrimination.

National treatment simply insists that countries deal with foreign enterprises the same way they deal with their own domestic enterprises. Non-discrimination simply mandates that countries treat imports from all trade partners’ identically. The big problems? They enable closed economies to maintain way too many trade barriers. For instance, countries that favor certain companies over others for either political reasons (as with China’s state-owned sector) or reasons of national economic strategy (as with Japan’s efforts to limit entrants into certain industries to prevent excessive domestic competition) can continue discriminating in similar ways against foreign competitors. And countries can maintain high trade barriers as long as they apply equally to all imports.

As for trade deficit reduction, it’s a great way to promote healthy, production-led American growth, rather than the kind of debt-led, bubble-ized growth that’s been engineered arguably going back to the 1990s. But here’s where the Trump blueprint can be faulted. Especially if the new NAFTA contains better rules of origin, it’s likeliest to reduce the U.S. trade deficit with non-NAFTA countries, not with the treaty signatories that the blueprint targets. And nothing would be wrong with that result at all.

Two other aspects of the NAFTA objectives deserve comment – and merit genuine concern. First, although it’s good that the administration has included on the list currency manipulation, critics are right to note that specifics are urgently needed. Their development, moreover, is important not mainly because Canada and Mexico have been important culprits (they haven’t been) but because this is a challenge that President Trump needs to meet in connection with countries that clearly have manipulated in the past and could well do so again.

Second, the Trump blueprint makes no mention of value-added taxes (VATS). Mexico’s is 16 percent, Canada’s is five percent at the federal level and eight percent at the provincial level. As with all other VATs, these levies act as barriers to imports and subsidies for exports. Candidate Trump rightly called for American countermeasures in order to level the trade playing field inside NAFTA. President Trump should take heed.   

Im-Politic: The Day After, Part II

Tags

2016 election, African Americans, Bernie Sanders, consumer confidence, Democrats, Elizabeth Warren, exit polls, Hillary Clinton, Hispanics, Im-Politic, labor, NAFTA, polls, TPP, Trade, trade laws, Trans-Pacific Partnership, Trump, white working class

It’s the day after the day after in America, and I’m still stupefied by the advent of the Age of Trump. I have absolutely no inside info on what to expect in the way of policy recommendations from the transition team or the new administration, so I’ll be just as eager as anyone for the hints and trial balloons to emerge.

But continuing with the theme of yesterday’s post, I believe it is possible to identify some important questions that major actors in American politics – and the voters they’ll keep trying to reach – will need to grapple with. Let’s focus today on the Democrats and their allies and constituencies, since they face the most obvious challenges:

>At least one piece of the conventional wisdom about Hillary Clinton’s failings strikes me as being right on target – especially since the emails exposed by Wikileaks make clear that her senior advisers spotted it as well: She never developed a clear, compelling positive message.

It’s not that “Stronger together” isn’t a positive idea, and no doubt had some appeal at a time of deep national division. But this slogan begs the question “Stronger together to where?” Regularly, Clinton suggested that she meant “to the 1990s,” when her husband was president. Many Americans – particularly in the chattering classes – do indeed view the period as a time of unprecedented prosperity along with peace. To many others, however – especially in working class precincts – the decade evoked memories of job-killing trade agreements like NAFTA. And of course many others were reminded of a string of scandals, both real and alleged.

In fact, I’d take the critique of Clinton’s message one step further. Even though her campaign website and many of her speeches were filled with any number of specific proposals, they were quickly replaced on the campaign trail, and especially in her ads, by a non-stop assault on Trump’s character and qualifications for the Oval Office. Clinton’s defeat strongly indicates that you can’t beat even a deeply flawed something with nothing.

>In fairness to Clinton, however, her messaging problems might have been related to a genuine quandary she faced. Democrats have styled themselves, and often acted like, the Party of the Common Man. As I and others have written, when it comes to issues like trade, demographic changes in Democrats’ ranks seem to be clashing with this relatively populist identity, and Tuesday night’s results indisputably show that the party has the majority of the white working class.

Indeed, according to the preliminary evidence, Clinton’s performance among union voters was feeble by the standards of recent Democratic presidential candidates – despite labor leaders’ vehement opposition to Trump. And keep in mind that nearly half of this electoral bloc is comprised of government workers, who naturally tend to favor the freer spending Democrats. As a result, Clinton’s backing from members of private sector unions was probably much weaker still.

So the Democrats face a fundamental choice, and it could well have rhetorically crippled an undecided Clinton. Will they turn their backs on private sector union members, possibly also in the belief that America’s changing population profile is steadily reducing their political importance? Or despite the gulf between private sector union workers and younger, better educated Democrats on issues like trade (along perhaps with immigration and those amorphous but crucial cultural and values issues), will they try to bring them back?

>Nonetheless, major Democratic constituencies and their leaders – including the unions and the party’s progressive wing – still loudly oppose America’s current approach to trade. But as mentioned above, they’ve been almost hysterically anti-Trump, to the point of incoherence.

If they’re serious about overhauling trade policy, it’s time for these folks to wake up and turn the partisanship down. They’ll soon be getting a president who supports most of their major and longstanding trade positions, including opposing the Trans-Pacific Partnership (TPP), sanctioning China for currency manipulation, rewriting NAFTA, and using U.S. trade law more energetically to fight predatory foreign practices.

Working with Mr. Trump, they can achieve these goals. Remaining in spiteful high dudgeon could doom reforms they’ve sought literally for decades. Statements by Senators Bernie Sanders and Elizabeth Warren, and from organized labor, are promising signs that these progressive leaders are open to cooperation with the incoming Chief Executive. Assuming that these declarations are serious, it’s time for the rest of the movement to fall in line and recognize that for the first time in modern U.S. history, the White House looks to be on their side.

>Finally (for now), nothing could be clearer about the 2016 election returns than the serious flaws they’ve revealed in the so-called science of polling. But politically focused surveys aren’t the only soundings apparently needing major surgery. Many of the best known economic surveys arguably were way off base as well.

For example, many polls – including this week’s exit polls – show strong public support for some form of legalization for illegal immigrants. Can this finding be reconciled with Mr. Trump’s win? Other surveys have revealed a notable warming of Americans’ views of free trade and recent trade agreements. That’s also hard to square with this week’s actual results – and would have been even had Mr. Trump lost by a respectable margin.

Also deserving of greater scrutiny – surveys of consumer and other forms of economic confidence. They have strongly tended to show significant improvement since the depths of the last recession, which isn’t hard to understand. But even their general claims of a simple return to pre-recession levels or, in some cases, better, ring false in light of this week’s voting.

One possible explanation is the gap identified by some researchers between rising optimism by African-Americans and Hispanics and the more downbeat views of whites. But if so, why did Trump fare much better among the latter than widely predicted, and why did he best 2012 Republican nominee Mitt Romney with both groups even though the economy was considerably weaker four years ago?

I can’t emphasize enough, however, how tentative my observations are, and how long my (and so many other) questions will defy confident answers. My only certainty so far is that election night this week was the most important historic event I’ve ever experienced. (I was born at the end of 1953.) I just wish I knew whether for good or ill.