Thursday, June 16, 2016

Why Is Obama Strangely Silent on the Pacific Trade Deal?

Here’s a blog from the Cato Institute which hits dead on President Obama’s attitude toward the TransPacific Partnership and trade in general.


Why Is Obama Strangely Silent on the Pacific Trade Deal?
By Daniel J. Ikenson

This article appeared on Newsweek on June 3, 2016.

Barack Obama assumed office promising to restore some of the U.S. foreign policy credibility notoriously squandered by his predecessor. But if Congress doesn’t ratify the Trans-Pacific Partnership (TPP) agreement before Christmas, the president will leave office with American commercial and strategic positions weakened in the Asia-Pacific and U.S. credibility further diminished globally. The specter of that outcome should be keeping the president awake at night.

The TPP is a comprehensive trade agreement between the United States and 11 other Pacific-Rim nations not called China. It is the economic linchpin of the administration’s “strategic pivot” to Asia, which in 2009 heralded U.S. intentions to extricate itself from the messes in Iraq and Afghanistan and to reassert its interests in the world’s fastest-growing region.

One would assume TPP ratification an obvious policy priority in Washington, but the lack of enthusiasm for considering the deal in Congress is exceeded only by the president’s unwillingness to break a sweat pitching its merits.

Superficially, one could blame election-year politics and a metastasizing popular antipathy toward trade agreements for the situation, but the original sin is the president’s lackluster effort to sell the TPP to his trade-skeptical party and the American public.

President Obama is down to his last chance to fulfill his obligation to posterity.
In the administration’s division of labor, those tasked with negotiating the TPP kept their noses to the grindstone and brought back an agreement that reduces taxes and other protectionist impediments to trade, establishes precedents for tackling new kinds of barriers that have emerged in the 21st century and positions U.S. businesses, workers, consumers and investors to capitalize on the region’s growth.

Meanwhile, those responsible for explaining the deal’s merits domestically spent too much time on the golf course. With scarcely greater frequency than a couple of sentences in his past two State of the Union addresses has President Obama attempted to articulate the importance of trade and the TPP to the American public. Even then, his “advocacy” has been grudging and couched in enough skepticism to create and reinforce fears about trade and globalization.

When Hillary Clinton—the president’s former secretary of state, co-architect of the Asian pivot and champion of the TPP—announced her opposition to the negotiated deal because it became a political liability for her, President Obama remained silent.

If the president really believes in the trade agenda his administration has pursued for eight years, his decision not to challenge Clinton was a significant tactical error—and a profoundly lamentable display of cowardice. Foregone was a prime opportunity to inject an affirmative case for the trade deal into the fact-deprived election debate.

And how could Obama let Clinton’s political ambitions take priority over his policy agenda? How could the president of the United States be so cavalier about actions and inactions that amount to kneecapping the U.S. foreign policy agenda and subverting American commercial interests?

The president’s near total absence of promotion of the TPP explains why, in the waning months of his tenure, ratification of the economic centerpiece of the vaunted Asian pivot is unlikely. In this absence emerged a fallacious, hysterical narrative about the allegedly deleterious effects of the TPP on jobs, the environment, public health and even cancer rates, which became the dry tinder that fueled the fiery anti-trade rhetoric of this year’s demagogic presidential campaigns.

As if that rhetoric weren’t already enough to render congressional support for TPP extremely difficult in Rust Belt districts (and beyond), the U.S. International Trade Commission’s assessment of the deal’s likely impact on the U.S. economy, with estimates of only very modest improvements in income and gross domestic product, is offering insufficient counterweight for politicians who might otherwise be inclined to push back against the populist narrative.

But entirely too much significance has been attached to the ITC analysis. It focuses exclusively on the easily quantifiable terms of the agreement and makes no effort to estimate the benefits of provisions that are qualitatively liberalizing, but too difficult to model quantitatively.

How would one measure the benefits of rules designed to curtail the monopolistic behavior of state-owned enterprises anyway? Moreover, the TPP’s importance exceeds its value as a single, static trade agreement, and the costs of its failure would be much greater than the immediate economic benefits of its success.

There is a strategic rationale for trade agreements and those kinds of arguments can be more politically persuasive than the economic ones. Indeed, the post-WWII liberal global trading order reflects the lessons of history: Commerce and economic interdependence are the best guarantors of peace. Or as the French economics writer Fredric Bastiat is alleged to have quipped a century earlier: “When goods don’t cross borders, armies will.”

It was with those lessons in mind that President George W. Bush paid a visit to the Senate in June 2005, with legislation to implement his Central American Free Trade Agreement (CAFTA) facing uncertain prospects. Citing the rise of Hugo Ch├ívez in Venezuela and the return of Daniel Ortega in Nicaragua, Bush urged his colleagues to consider CAFTA an agreement that would serve long-standing U.S. strategic interests—with a sprinkling of economic benefits to boot. The following day the agreement was ratified.

President Obama is down to his last chance to fulfill his obligation to posterity. Success requires that he put the TPP into its broader geopolitical and geoeconomic contexts and describe a world with and without its ratification.

The president attempted as much in a Washington Post opinion piece last month, describing the TPP as an opportunity for the United States to write the new rules of global trade before China does. It was a laudable start, if not too reliant on the myth of trade as a competition between the United States and China.

With so many Americans leery of China’s rise and U.S.-China relations growing more contentious over economic and security issues, the president may be tempted to describe the TPP as an agreement that “excludes,” “contains” or “isolates” China. That characterization would certainly resonate with members of Congress looking for cover to support the TPP.

But portraying the TPP as a weapon of economic warfare essential to “beating” or “defeating” China is short-sighted and fraught with the perils of self-fulfilling prophesy. Our economic relationship with China is more collaborative than competitive and the costs of estrangement would be felt deeply in the United States.

Instead, President Obama should argue that U.S. leadership, and immersion in the process of crafting the 21st-century rules that will govern the trade of China’s most important partners, will leave Beijing with no better alternatives than to embrace those rules. Accession to the TPP is open to all newcomers that can meet the deal’s relatively high standards, and that, importantly, includes China.

The president’s comprehensive case for the TPP must go well beyond the static benefits estimated by the ITC. It must include the benefits associated with the liberalizing policy reactions of other countries in the region, as they aspire to become parties to the agreement.

It must include the benefits associated with TPP expansion to include South Korea, the Philippines, Indonesia, Thailand, Colombia, Taiwan and China. It must include the benefits of TPP as a catalyst for an eventual Free Trade Area of the Asia Pacific to include countries like India and Russia. And it must include the benefits of the TPP as an inducement to Europe, Brazil, South Africa and the rest of the world to resuscitate the process of multilateral trade liberalization, which has been mostly defunct for over 20 years.

These enormous potential benefits of TPP ratification this year are also the costs of failure to ratify this year. If the United States fails to ratify the agreement this year, TPP members that are also party to the China-centric Regional Comprehensive Economic Partnership negotiations will be drawn more deeply into China’s ambit.

While that doesn’t mean that U.S. entities will be excluded from engaging in commerce with entities in those countries, it does mean that existing China-centric investment and supply chain relationships will be reinforced, new ones will emerge and become established and the costs of reorienting those relationships in the event of some future TPP implementation will increase with each passing year.

But at a deeper, institutional level, failure to ratify would impair U.S. commercial and diplomatic interests in the region. Foreign governments that incurred political costs to push the TPP in their countries with expectations of U.S. participation wouldn’t soon forget that the United States proved to be an unreliable partner.

Expectations that the United States is still capable of leading the world to the economic liberalization it so desperately needs would erode, and with that diminished credibility U.S. policy objectives would become more difficult or, in some cases, impossible to meet.

Those would be the costs of a U.S. failure to ratify the TPP this year. Avoiding that outcome is President Obama’s obligation to posterity.

Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

Wednesday, June 8, 2016



Read any good reports lately?

With summer nearly upon us, it’s time to start gathering a list of good reads – both fiction and nonfiction – for those long lazy days at the beach.

USTR Michael Froman already has a  and list sorted out.

And his top candidate in the nonfiction category remains the Peterson Institute for International Economics’ opus on the TransPacific Partnership.

What not to read, according to USTR, is the just-released International Trade Commission analysis of the TPP.

One – the study by the Peterson Institute – reflects the opinion of the “editors” there who generally want to make sure that the end-product tracks their own philosophy that “free trade is good for all.”

The other – the ITC report – suffers from heavy-handed pre-publication editing by an irascible overseer in the form of the US Congress.  The numbers in the report are likely to be correct even though the writing is stilted and lacks adventure.

Even before advance copies of the ITC reached the bookstores, USTR was busy blasting ITC and praising Peterson.  Two days before its release, USTR sent pre-publication reviews to journalists touting how much better the Peterson report was.

In fact, USTR suggested that Congressional testimony by the American Potato Council was a better read.

(An aside.  The day before release of the ITC report a long-time Washington trade wonk remarked to me about the audacity of the Public Citizen organization pointing out the weaknesses of the ITC study – even before it was issued.   He did not know that USTR was following Public Citizen’s lead.)

USTR suggested there was lack of imagination in the ITC report – and the plot took the reader nowhere.  According to USTR, the ITC lacked any type of adventurous speculation – and thus lacked imagination.  It was simply not a good read, according to USTR.

In contrast, the Peterson report was liberal in its speculation that the TPP would put the United States – and the world in general – on the right road to eternal economic happiness.

Public Citizen said both were fictional – “way-out” science fiction with no relation to fact or history.

WTD’s recommendation for long days on the sand:  Plutarch’s Lives, which is much peppier and captures the reader’s imagination while holding to the facts – or various versions of the facts.  Neither the Peterson Institute report nor the ITC analyses contain stories of wife swapping.   Plutarch does.  He was no dummy.  He knew how to get readers’ attention.

The economic bottom line – Peterson predicts a national income increase attributable to TPP of 0.5 percent over 15 years; the ITC says 0.25 percent.  Both could be considered rounding errors.

NOTHING TO GET EXCITED ABOUT!

Jim Berger