November 29, 2016

TPP

All indications are that the Trans-Pacific Partnership (TPP) agreement is, as far as the United States is concerned, dead. I’m not sure whether this is a good thing or not. It concerns me that President-elect Trump never met a trade agreement he didn’t hate. He doesn’t seem fundamentally to be a protectionist, but his arrogant faith in his skills as a negotiator could easily lead to a trade war, which would be in no one’s interest.

I am a believer in free trade because it increases productivity globally and, at least in principle, lifts standards of living. That said, unconstrained free trade, like unconstrained capitalism generally, has pernicious effects if governments do not establish reasonable rules to avoid the evils of monopoly, labor exploitation, environmental destruction, and the like. Such constraints should be part of trade agreements.

In the recent presidential campaign, no candidate came to the defense of the TPP. Trump was against it; he thinks all existing trade agreements are bad because they were negotiated by people less skilled than himself. Bernie Sanders, for whatever reason, was against it, and Hillary Clinton was against it because Bernie Sanders was. The other Republicans had little to say on the subject.

What is remarkable is that virtually no presidential candidate made a coherent case against the TPP; candidates merely asserted their opposition. The effect of this was that voters—especially those who cast their ballots for Trump—were left with the impression that trade agreements cost American jobs. It is true that trade agreements tend to cause the loss of some jobs in some sectors of the economy, but jobs are also created elsewhere. Further, the reduction of trade barriers should result in lower consumer prices. The average voter tends not to see the advantages gained through trade pacts, as they are unrelated to agreements in any perspicuous way. Even those getting new jobs may not attribute their good fortune to a trade agreement. Anyone who loses a job, however, even if it is not directly caused by the adoption of a new trade agreement, will look for someone or something to blame, and trade agreements are as good a candidate for blame as any.

Why did no candidate explain the advantages of free trade—advantages widely acknowledged in economic theory and traditionally believed by Republicans—and explain why the TTP is defective. During the campaign, I heard all the major candidates trash the TPP, but I don’t remember anyone saying why the TPP is bad or discussing even one of its provisions. Citizens were offered no insight into the desirable or undesirable features of trade agreements.

The Trans-Pacific Partnership may indeed be a move in the wrong direction, but it is a legitimate concern that our stepping away from it may lead to China’s writing the trade rules for Pacific Rim countries. This is not a comforting concept, whatever the  demerits of the TPP.

What would President Trump have us do about the TPP? Clearly, he does not want it approved, and it appears it will not be. Does he want to replace it with something, or is he willing to give the lead in Pacific trade to China? If he wants a different sort of pact, how does he propose to craft it given current circumstances?

Trump thinks he is a great negotiator. All he knows how to do, however, is to get a good deal for himself and to crush the little guy with whom he is “negotiating.” This is not helpful experience for developing trade deals. First, as president, Trump cannot afford to concern himself with the minutia of trade talks. Moreover, his my-way-or-the-highway approach to negotiation will get him nowhere. He knows nothing of the win-win deal and has yet to learn that other countries are not going to give America something without getting something in return.

I don’t doubt that the TPP has its faults. It may be a terrible agreement, in fact. But will Trump’s ego result in a trade war that raises the prices by 40% of the products that Americans have come to regard as necessities of the good life? I hope not, but I am not optimistic.

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