Following Up: A U.S.-Less Pacific Trade Zone is Still Bogus After All These Years

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Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, Following Up, globalization, Reuters, TPP, Trade, Trans-Pacific Partnership, United Kingdom

Time to pat myself on the back. It’s on a trade issue that may seem obscure, but that’s actually an important example of how completely dishonestly pre-Trump Presidents, and their enablers in the Mainstream Media, tried to sell offshoring-friendly trade agreements and similar policies.

The agreement in question was the Trans-Pacific Partnership (TPP), pushed hard by former Presidents George W. Bush and Barack Obama, but resisted in Congress through the end of 2016 and nixed by Donald Trump two days after his first White House term began.

Any number of arguments were advanced by globalization cheerleaders in government, business, academe, and journalism alike. Some were economic (e.g., the deal would “compel” the 11 other signatory countries throughout the Pacific Basin region to abide by high standards for respecting worker rights and environment protections that would level the proverbial playing field for U.S.-based companies and workers). Some were strategic (mainly, the TPP would be a great instrument for containing the rise of Chinese power and influence in the economically crucial East Asia-Pacific area). They’ve been parroted conveniently here. 

All were utter baloney. For example, as noted on RealityChek, the labor rights and environment provisions of the deal – and other parts aimed at limiting government subsidization of industries – were completely unenforceable. As for the China containment claims, they ignored the TPP rules that permitted the importation into the new free trade zone of products with lots of Made in China parts, components, and materials – meaning that Beijing would have enjoyed many key benefits of the agreement while incurring exactly none of its obligations.

But arguably the most laughable (but widely swallowed) pro-TPP talking point involved the contention that the agreement would open to U.S. exports markets representing an impressive 40 percent of the entire world’s economic output.

I put the torch to that bit of fakery in this 2015 op-ed, which pointed out that at the time, fully 62 percent of the new trade zone consisted of the U.S. economy, and that without America, the rest of the members combined added up to just slightly over 15 percent of global product.

More fun facts: Another 20 percent of the economies of the proposed free trade area was comprised by Mexico and Canada – which were already linked to the United States via the North American Free Trade Agreement (which has since been updated and improved). So the only way anyone could legitimately call the TPP a potential export bonanza for the United States was if they counted America trading with itself.

And just today, a news report came out showing that I’m still right about the minimal possibilities offered by the TPP to the United States’ domestic economy (that is, companies that make their products state-side and employ Americans). According to Reuters, the United Kingdom (UK) is planning to join the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).” That’s an effort by the other TPP countries to create a version of the former agreement without the United States.

The UK’s top trade official is making some familiar-sounding arguments: “Today we’re announcing our intent to pursue accession to CPTPP, one of the world’s largest free trading areas.” And to some extent, I can’t blame her. After all, the country’s trade opportunities will be significantly diminished by the Brexit decision to leave the European Union. So the UK clearly needs all the partial substitutes it can get.

But as Reuters’ coverage makes clear, the prize is even more underwhelming than when I quantified it five years ago, as the U.S.-less trade area right now represents only 13.5 percent of the global economy.

And by the way, as with the pre-Trump United States, London is bound to be disappointed with its new CPTPP partners in another important way: Most of them rely heavily on growing by racking up trade surpluses. That is, agreement or not, they’re unlikely to display any greater appetite for British products and services as they were for any U.S. counterparts or for any foreign products and services – they can’t create them themselves.

Since the 18^th century, “Rule Britannia” has been one of the most popular British patriotic songs. Joining the CPTPP could well prompt a composer to create a modern version titled “Rue Britannia.”

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(What’s Left of) Our Economy: Why Trump was Still Right to Nix Obama’s TPP Trade Deal

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Asia, Barack Obama, bilateral trade agreements, China, export-led growth, mercantilism, multilateral trade agreements, non-tariff barriers, rules of origin, subsidies, tariffs, tech transfer, TPP, trade surpluses, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

At first I was irritated with President Trump for his expressions of interest this year in reviving U.S. efforts to join the Trans-Pacific Partnership (TPP) – the Pacific Rim-wide trade agreement that former President Barack Obama couldn’t persuade Congress to ratify, and that Mr. Trump removed from America’s policy agenda during his first week in office.

I still wish the President had kept the TPP consigned to the proverbial ash heap of history. But I do see one silver lining in his apparent about-face: the new opportunity it creates to remind how awful the Obama TPP was, and in particular how cynical the case that it represented a masterful ploy to contain the rise of Chinese power regionally and globally, and even shape it to serve America’s goals of sustaining an open world trading system.

In fact, it’s entirely possible that Mr. Trump’s apparent new openness to TPP results at least partly from widespread claims from mainstream politicians and analysts that its multilateral nature endowed the deal with much more potential to curb China’s trade predation than the unilateral tariffs he’s announced.

Yet this contention is the one that’s most easily refuted. First, the version of the treaty signed by Obama contained a wide open back door for many Chinese exports by allowing goods that contained high levels of content produced outside the TPP zone to be traded freely within the zone. Given how central China is to Asia-wide production chains, these loose rules of origin were bound to enable China to enjoy crucial benefits created by the TPP without incurring any of the obligations.

Second, until the eve of its departure from office, neither the Obama administration nor any TPP supporters in Congress or the mainstream media or the think tank world lifted anything more than the occasional pinky even to protest perhaps the principal source of China’s rising economic and military power – the massive transfer of cutting edge knowhow, along with capital, from U.S. tech companies to Chinese business partners or other institutions, either voluntarily (including through shortsighted training programs and investments in Chinese entities) or involuntarily (due to Beijing’s widespread practice of linking access to the China market to the handover of critical technology).

The sudden transformation of these corporate panda-huggers and their hired American guns into China skeptics and even hawks has demonstrated nothing more than that national security is the last refuge of a trade policy scoundrel – especially since by all accounts, U.S. technology and investment continue pouring into China – including defense-related tech. (See here and here for some evidence.)

Third, there’s no reason to believe that most of the other key TPP members have any interest in turning China into a free-trading economy. Quite the contrary. Whether it’s Japan or Singapore or Vietnam or Malaysia, most of the treaty’s most important countries have followed China-style economic development models (except when they’ve borrowed from Japan’s somewhat different but of course much earlier blueprint). And economic openness emphatically isn’t in the recipe. What’s central to these strategies is amassing trade surpluses with the United States and the rest of the world to help generate adequate levels of growth and employment.

The bottom line: Most TPP countries knew that effective disciplines on the trade predation largely responsible for China’s surpluses could be used against their own subsidies and non-tariff barriers. Conversely, it’s surely the reason that these economies accepted the paper curbs on mercantilism that are mandated by TPP. They’re rightly confident that thanks to the secretive bureaucracies that keep their economies effectively closed – and their barriers difficult for outsiders even to identify, much less litigate – none of these curbs is remotely enforceable.

Even better for TPP’s mercantile majority, the treaty’s dispute-resolution system ensured that the United States would be repeatedly outvoted when it sought to advance or defend its interests.

That’s why the TPP was so likely to supercharge America’s already enormous and economically damaging trade deficits. The TPP mercantilists’ liberalization promises would do nothing substantial to open their markets and increase U.S. export opportunities. But America’s TPP commitments, carried out by a government characterized by transparency, would be very effective guarantees that the American market would remain wide open to the TPP majority’s products.

President Trump has demonstrated that he recognizes many of these fatal flaws in the Obama TPP. His stated preference for bilateral over multilateral trade deals suggests an understanding that the former give the United States much more legal authority in dispute resolution. Moreover, he has explicitly tweeted that he’d only back rejoining the TPP if major fixes were made.

Precisely because he’s the only American President in recent memory to show any interest in changing the nation’s ill-considered trade status quo, and any awareness that the United States retains ample leverage to achieve its trade objectives unilaterally, I can’t rule out the possibility that Mr. Trump might turn TPP into a winner for the U.S. domestic economy (as opposed to the importing and offshoring lobbies).

But the main lesson that should be taken from decades of American trade diplomacy with Asia is that economies structured to promote exports and limit imports are going to stay substantially closed no matter what promises they make. Therefore the best course for the United States to make is to expend its energy and resources on reducing its economic engagement with Asia, rather than trying to remake the region in anything like its own image.

(What’s Left of) Our Economy: Fake Trump Trade News from the Washington Post

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Barack Obama, China, Damian Paletta, Erica Werner, Seung Min Kim, TPP, Trade, Trans-Pacific Partnership, Trump, Washington Post, {What's Left of) Our Economy

There’s nothing unusual about my waking up each morning not sure about exactly I’ll be blogging on that day. There’s everything unusual about making up my mind immediately after glancing at the front page of the print Washington Post that arrives at my home daily. All it took was one look at the paper’s coverage of President Trump’s decision to consider starting negotiations to enable the United States to rejoin the Trans-Pacific Partnership (TPP) – the Pacific Rim trade deal that he denounced during his campaign for the White House and that he withdrew from in his first week in office.’

The problem with the Post coverage entailed the one of the greatest sins journalists can commit – portraying matters of opinion as matters of fact. This transgression, moreover, almost could not appeared prominently – in the third paragraph of the edition’s front page lead story.

According to writers Erica Werner, Damian Paletta, and Seung Min Kim (and of course their editors),

“An embrace of the TPP would give Trump more leverage in his escalating trade feud with Beijing. It also would give U.S. farms, retailers and other businesses better access to foreign markets if China makes good on its recent threats of new tariffs on U.S. goods.”

In other words, what’s not to like about the treaty? And how could Mr. Trump have possibly turned it down?

Yet what’s apparently escaped the Post news team is that the points made above are far from facts. They’re opinions. They’re possibilities, to be sure, and have long been central to the case for TPP. But they’re nothing more than contentions. At best, no one can know whether these benefits will be realized. Indeed, as I’ve observed repeatedly (see, e.g., here and here), because of specific provisions of the version of TPP agreed to by former President Barack Obama (but never ratified by Congress), grounds for major skepticism about all these claims abound.

When I tutored Washington, D.C. school kids several years ago, one of the lessons assigned to me for second or third graders was distinguishing fact (“that chair is brown”) from opinion (“that chair is pretty”). Little did I imagine that adult journalists would need drilling on this subject, too.

(What’s Left of) Our Economy: What Trump TPP Disaster?

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exports, free trade agreements, merchandise exports, TPP, Trade, Trade Deficits, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The foreign policy and economic policy establishment verdict is in: President Trump’s decision at the start of his administration to abandon the Trans-Pacific Partnership (TPP) trade agreement has been a “disaster.” Economically speaking, in particular, they insist, the deal would have significantly boosted U.S. exports, and therefore the nation’s growth and worker incomes. No less than Barack Obama said so when he was President. And the recent decision of the other eleven TPP countries to conclude the agreement on their own will only increase the costs to Americans.

No one has a perfect crystal ball on these matters, so these gloomy predictions could well be right. (At the same time, none of these forecasters seems to admit that, as I’ve pointed out, the United States would have represented nearly two-thirds of the total TPP economies, and that most of the major members depended heavily on net exports, especially to the United States, for their growth.) But it’s now been more than a year since Mr. Trump announced the pull-out, and raise your hand if you can see a trade or economic disaster.

Let’s start with one of the establishment’s main measures of U.S. trade policy success – boosting American gross exports – and let’s keep in mind that Mr. Obama signed the TPP in early 2016. The year before, U.S. goods exports to these eleven other countries combined fell by 6.51 percent. So that looked like one pretty strong argument for improving the situation with some effective trade diplomacy. For comparison’s sake, U.S. goods exports to the entire world that year decreased by somewhat more – 7.32 percent.

This export-focused pro-TPP argument seemed pretty convincing the following year, too, after the former President signed the deal and when he spent considerable time trying to secure Congressional ratification. That year, U.S. merchandise exports to the other signatories combined fell slightly faster (by 3.62 percent) than they did to the rest of the world (3.47 percent).

And what about the first year of TPP killer (at least for the United States) Donald Trump’s presidency? American goods sales to the “TPP Eleven” are back up by 5.98 percent. That’s somewhat weaker growth than global goods exports, (6.60 percent), but this particular section of the sky doesn’t seem to be falling.

It’s hard to find a disaster in the trade balance figures, either – my favorite method of evaluating American trade policy. Between 2014 and 2015, the year before the Obama signing, the United States’ merchandise trade deficit with the TPP countries grew by two percent, and with the world as a whole by 1.44 percent. So American trade with these prospective treaty partners was faring relatively well – though not very well.

The year after, mainly following the signing, came a major change. The goods trade shortfall with the TPP Eleven rose by 6.38 percent even as it was falling by 1.12 percent with the world overall. And in Trump Year One? Both such U.S. deficits rose – by 10.18 percent year-on-year for the TPP countries, and by 8.06 percent for the world as a whole.

In absolute terms, this means that the TPP gap lately is up faster than the global gap. So score one for the TPP fans? But the numbers also show that the deficit worsened much more dramatically with the rest of the world when compared with the previous year. So score one for the opponents.

As I see it, the opponents deserve far more credibility, since the next euphoric trade deal prediction by supporters will be their first. But given that the Trump TPP decision is only a year old, and the new agreement hasn’t even been signed yet, I’m willing to let a decent interval pass before rendering a firm conclusion. If the trade cheerleaders have any grip left on reality, they’ll do the same.   

Our So-Called Foreign Policy: Is Trump Isolating the U.S. in Asia? Apparently No One’s Told the Asians

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alliances, Asia, Australia, Barack Obama, China, India, Japan, Our So-Called Foreign Policy, Quadrilateral Security Dialogue, Susan Rice, TPP, Trade, Trans-Pacific Partnership, Trump

Ever since President Trump kept his campaign promise and nixed U.S. participation in the Trans-Pacific Partnership (TPP) trade agreement, America’s chattering classes have been charging that his decision has opened the door wide to China to expand its influence in East Asia at America’s expense, and shunted the United States to the sidelines of the regional and international economy. Mr. Trump’s just completed visit to Asia has revived all these accusations – and not so coincidentally, afforded yet another opportunity to demonstrate just how ludicrous they are.

Most embarrassingly, if the president’s approach to “this vital region,” in the words of Barack Obama’s national security adviser, Susan E. Rice, even has much potential to leave “the United States more isolated and in retreat, handing leadership of the newly christened “Indo-Pacific” to China on a silver platter,” no one seems to have told Asia’s leading powers. For they have been hard at work helping Washington develop a new grouping that’s obviously aimed at frustrating Beijing’s ambitions.

So even as Rice and the rest of the foreign policy establishment were bemoaning the United States’ supposedly declining influence in the first year of the Trump presidency, representatives of Japan, Australia, and India were meeting with American counterparts in the Philippines, site of the latest series of regional summits, to breathe life into longstanding plans to foster greater cooperation among their four democracies.

And if you don’t think that the effort is amply capable of worrying the Chinese, don’t take my word for it. Take China’s. Just as the meeting was concluding, Beijing was out with a statement warning that no joint ventures among regional countries should target or damage a “third party’s interest.”

Just as interesting: Plans for such a “Quadrilateral Security Dialogue” were first advanced by Japan in 2007. But Australia and India weren’t especially interested – the former for fear of antagonizing the Chinese. Apparently nothing that Washington did during the ensuing Obama years changed their minds. Now, however, they’re at the table.

At least two overlapping developments appear to be responsible. First and most unmistakably, America’s pushback against China under Obama on both the national security and economic fronts was so feeble and ineffective that the PRC’s power grew tremendously. So the Australians and Indians no doubt now view the need to contain China more seriously. Second, it’s entirely possible that President Trump’s indications that the United States will no longer assume the bulk of the burden and risk of maintaining Asian security while getting shafted continuously by Asian trade policies has convinced those two countries in particular that they’d better get into a proactive mode.

And maybe most interesting of all, the Trump decision to exit TPP (whose signatories included Australia and Japan) apparently did nothing to discourage Canberra, New Delhi, or Tokyo from teaming up with the United States.

The main reason could not be more obvious (except to the American establishment): Keeping America engaged however possible is the only alternative conceivable for the time being to greater Chinese control. And herein lies a crucial lesson that Mr. Trump may have grasped but that his establishment critics have unmistakably ignored: The United States is not a superpower because of what it does on the world stage. It’s a superpower because of what it is.

That is, the source of American strength is not how many alliances it joins or trade treaties it signs or international regimes it creates – or even how many conflicts it enters. Instead, the source is strength itself – in all of its interlocking forms: military, economic, and technological.

So as long as the United States maintains this strength – which of course can be and has been greatly undercut by the kind of Asian mercantilism winked at by American presidents for decades but protested loudly by President Trump – it will remain a player wherever it wishes. But nothing is likelier to limit America’s global reach – and threaten its interests – than the apparent establishment belief that international activism per se can somehow substitute for power.

Not that I’m a supporter of what may be an emerging American strategy here. For as I’ve written, the nation’s essential interests in East Asia are economic – creating satisfactory terms of trade and commerce. And as long as the United States serves as an irreplaceable final market for Asia’s export-heavy economies (that is, as long as it remains soundly and sustainably wealthy), it will be able to lever that power to achieve its goals whoever runs Asia politically.

And as I’ve also written, East Asia’s major powers (e.g., Australia, Japan, and India) should be strong enough, especially together, to resist China’s designs on their own. Further, to give them an extra edge, the United States can always sell them advanced weapons, and if need be drop its insistence that they forswear (in the case of Australia, Japan, and South Korea) nuclear weapons.

But if Mr. Trump is going to double down on the United States’ traditional strategy of Asia’s stabilizer and defender, his apparent understanding – expressed most often during the campaign – that America’s economic ties with the region will need to change dramatically provides the only hope of enduring success.

Our So-Called Foreign Policy: More Childish Attacks on Trump

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alliances, allies, Council on Foreign Relations, foreign policy establishment, George H.W. Bush, Greece, IMF, International Monetary Fund, international organizations, internationalism, Iran deal, JCPOA, Joint Comprehensive Plan of Action, journalists, Mainstream Media, media, military bases, NAFTA, New Zealand, North American Free Trade Agreement, Our So-Called Foreign Policy, Paris climate accord, Philippines, Richard N. Haass, Ronald Reagan, TPP, Trans-Pacific Partnership, Trump, UN, UNESCO, United Nations, Withdrawal Doctrine, World Bank, World Trade Organization, WTO

I’m getting to think that in an important way it’s good that establishment journalists and foreign policy think tank hacks still dominate America’s debate on world affairs. It means that for the foreseeable future, we’ll never run out of evidence of how hidebound, juvenile, and astonishingly ignorant these worshipers of the status quo tend to be. Just consider the latest fad in their ranks: the narrative that the only theme conferring any coherence on President Trump’s foreign policy is his impulse to pull the United States out of alliances and international organizations, or at least rewrite them substantially.

This meme was apparently brewed up at the heart of the country’s foreign policy establishment – the Council on Foreign Relations. Its president, former aide to Republican presidents Richard N. Haass, tweeted on October 12, “Trump foreign policy has found its theme: The Withdrawal Doctrine. US has left/threatening to leave TPP, Paris accord, Unesco, NAFTA, JCPOA.” [He’s referring here to the Trans-Pacific Partnership trade deal that aimed to link the U.S. economy more tightly to East Asian and Western Hemisphere countries bordering the world’s largest ocean; the global deal to slow down climate change; the United Nations Educational, Scientific and Cultural Organization; the North American Free Trade Agreement, and the Joint Comprehensive Plan of Action – the official name of the agreement seeking to deny Iran nuclear weapons.]

In a classic instance of group-think, this one little 140-character sentence was all it took to spur the claim’s propagation by The Washington Post, The Atlantic, Marketwatch.com, Vice.com, The Los Angeles Times, and Britain’s Financial Times (which publishes a widely read U.S. edition).  For good measure, the idea showed up in The New Republic, too – albeit without mentioning Haass.

You’d have to read far into (only some of) these reports to see any mention that American presidents taking similar decisions is anything but unprecedented. Indeed, none of them reminded readers of one of the most striking examples of alliance disruption from the White House: former President Ronald Reagan’s decision to withdraw American defense guarantees to New Zealand because of a nuclear weapons policy dispute. Moreover, the administrations of Reagan and George H.W. Bush engaged in long, testy negotiations with long-time allies the Philippines and Greece on renewing basing agreements that involved major U.S. cash payments.

Just as important, you could spend hours on Google without finding any sense in these reports that President Trump has decided to remain in America’s major security alliances in Europe and Asia, as well as in the United Nations, the International Monetary Fund, the World Bank, and the World Trade Organization (along with a series of multilateral regional development banks).

More important, you’d also fail to find on Google to find any indication that any of the arrangements opposed by Mr. Trump might have less than a roaring success. The apparent feeling in establishment ranks is that it’s not legitimate for American leaders to decide that some international arrangements serve U.S. interests well, some need to be recast, and some are such failures or are so unpromising that they need to be ditched or avoided in the first place.

And the reason that such discrimination is so doggedly opposed is that, the internationalist world affairs strategy pursued for decades by Presidents and Congresses across the political spectrum (until, possibly, now) is far from a pragmatic formula for dealing with a highly variegated, dynamic world. Instead, it’s the kind of rigid dogma that’s most often (and correctly) associated with know-it-all adolescents and equally callow academics. What else but an utterly utopian ideology could move a writer from a venerable pillar of opinion journalism (the aforementioned Atlantic) to traffick in such otherworldly drivel as

“A foreign-policy doctrine of withdrawal also casts profound doubt on America’s commitment to the intricate international system that the United States helped create and nurture after World War II so that countries could collaborate on issues that transcend any one nation.”

Without putting too fine a point on it, does that sound like the planet you live on?

I have no idea whether whatever changes President Trump is mulling in foreign policy will prove effective or disastrous, or turn out to be much ado about very little. I do feel confident in believing that the mere fact of rethinking some foreign policy fundamentals makes his approach infinitely more promising than one that views international alliances and other arrangements in all-or-nothing terms; that evidently can’t distinguish the means chosen to advance U.S. objectives from the objectives themselves; and that seems oblivious to the reality that the international sphere lacks the characteristic that makes prioritizing institution’s creation and maintenance not only possible in the domestic sphere, but indispensable – a strong consensus on defining acceptable and unacceptable behavior.

One of the most widely (and deservedly) quoted adages about international relations is the observation, attributed to a 19^th century British foreign minister, that his nation had “no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” Until America’s foreign policy establishment and its media mouthpieces recognize that this advice applies to international institutions, too, and start understanding the implications, they’ll keep losing influence among their compatriots. And rightly so.

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

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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

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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.   

Making News: Podcast of Wednesday’s John Batchelor Show Interview – & More!

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Apple, China, global economy, Making News, manufacturing, The John Batchelor Show, TPP, Trade, Trans-Pacific Partnership, Trump

I’m pleased to report that the podcast of my interview Wednesday night on John Batchelor’s nationally syndicated radio show is on-line.  To hear this great discussion of the future of U.S. trade policy and the global economy, click onto this link.  Then go the “Podcasts” section on the right, scroll down the list of segments, and choose the one whose title begins with “End of TPP.”  Since my appearance lasted for two segments, the session with John and co-host Gordon Chang was particularly detailed and informative.

In addition, it was great to be quoted in IndustryWeek’s big article yesterday on how Apple Computer may or may not fit into the future of U.S. domestic manufacturing – and what impact we can expect from the Trump administration. Here’s the link.

(What’s Left of) Our Economy: TPP Defenses are Turning Downright Farcical

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Asia, China, export-led growth, Harvard Business Review, Pankaj Ghemawat, TPP, Trade, trade surpluses, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

It’s always embarrassing when your brain stops working. (And we’ve all had those moments.) It’s especially embarrassing when it happens in public, and it’s downright humiliating when you make your living with that brain – and you have a title like “ Global Professor of Management and Strategy and Director of the Center for the Globalization of Education and Management at the New York University Stern School of Business.” Not to mention “Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Spain.”

So if I was Pankaj Ghemawat, I’d be furious that the Harvard Business Review has just shared on Twitter an absolutely jaw-dropping example of brain freeze – his December article titled, “If Trump Abandons the TPP, China Will Be the Biggest Winner.”

Like way too many other backers of the Trans-Pacific Partnership that’s been just killed off by President Trump, Ghemawat seems completely unaware of some basic facts about TPP’s relationship with China. Like the fact that, even though the deal was widely touted as a means of containing the PRC’s rising economic, political, and military power, the negotiators gave Beijing a wide open back door into the new free trade zone. How? By permitting large numbers of manufactured products to be sold in TPP countries duty-free even if they contained high levels of Chinese content.

As a result, China would not only enjoy many of the benefits of TPP membership without incurring any of the obligations. Worse, it would reap these economic rewards without arousing the attention of economic interests struggling against often predatory Chinese competition.

But unlike most TPP supporters who have focused on the supposed China angle, Ghemawat has introduced an argument that is not simply lame, but transparently so.

It has to do with with this map he included in his piece.

 

Its purpose is illustrating Ghemawat’s claim that Mr. Trump’s decision to pull the TPP plug is a big win for China by showing which countries trade most with the United States, and which countries trade most with China. According to the author, the map shows that “The U.S. leads in a few places, particularly in the more proximate parts of the Americas, but China leads more broadly.” Even more worrisome (allegedly), “Extrapolations indicate that by 2025, the Chinese sphere of trade leadership will extend even farther, with the U.S. forecast to lead only in the part of the Americas that is north of the equator.”

But if Ghemawat’s brain really was working when making these claims, it seemed to have convinced him that the countries taking up the most land area are the most important economically and strategically. To which the most respectful reply is, “You can’t be serious!”

After all, think just for a minute about all those geographically enormous regions where trade with China is dominant, or where the Chinese lead. Much of it is sub-Saharan Africa, which is economically inert. Much of the rest is Russia and Eastern Europe – no great prizes economically. The same goes, in spades, for South America.  

Three major economies are indeed on this list: Australia, Brazil, and Japan. But the first two are mainly raw materials suppliers to Chinese manufacturing. They also compete with American farmers and ranchers for global markets, but the last thing they want to do is to start buying lots in the way of U.S. agricultural products.

As for Japan, it’s obviously extremely wealthy. Indeed, it’s the world’s third largest single national economy (behind the United States and China). But it’s been growing very slowly, at best, for many years, and its markets are hermetically sealed both in agriculture and industry. And much of its trade with China consists of sending the PRC parts and components of advanced manufactures that the Chinese assemble into final products and then export – often to the United States.

Further, the same goes for most of the other important Asian countries where China holds the trade lead that so impresses Ghemawat. Sorely inadequate American trade data makes presenting precise numbers impossible, but how else can it be explained that nearly every economy in the region runs hefty trade surpluses with the United States?

Finally, it’s vitally important to remember this export orientation when thinking about the one country on earth where China trade dominates, according to the author’s map: China itself. Exports – and more specifically, amassing trade surpluses – have long been and remain crucial to China’s growth, and in turn to its political stability. And the United States is a big part of this picture. Even China’s own (often dubious) economic data reveal that nearly half of its annual trade surplus is run with America.

China is an important market for U.S. exports as well. But as with its Asian neighbors, it’s a much smaller final consumption market because so many U.S. sales to the PRC also are parts of components of finished goods that then get sent abroad – frequently right back to the United States. And even the deeply misleading aggregate trade data make clear that in absolute terms, the Chinese market is incidental to the American economy, and even more so to its growth.

Karl Marx, who was wrong on a great deal, once famously wrote that, “History repeats itself, first as tragedy, second as farce.” Ghemawat’s article is strong evidence that TPP defenses (and lamentations) are well into the second stage.