November 17, 2015
In policy circles, “free trade’ is always supposed to be good. Only ignorant Neanderthal types like protectionism. Therefore the NYT was talking up the Trans-Pacific Partnership (TPP) when it presented the pact as being part of a “free trade” tradition:
“Surrounding himself with cabinet secretaries and generals who had served presidents of both parties, Mr. Obama presented what has long been the establishment Washington consensus in favor of free trade against the surging tide of populist outrage from the political left and right against an agreement that critics call a bad deal for American workers.”
Since the United States already has trade deals with most of the countries in the TPP, and these countries account for the vast majority of U.S. trade with TPP countries, it does relatively little to reduce trade barriers. On the other hand, it makes patent and copyright and related protections stronger and longer. It is entirely possible that the impact of these protections in raising barriers will be larger than the reductions in tariffs and other barriers.
It is also worth noting that the more money that foreigners have to pay for drugs and other protected products, the less money they will have to buy U.S. manufactured goods. For this reason, higher drug prices might be good news for people who own lots of Pfizer stock, but they are bad news for just about everyone else.
Unfortunately, neither the Obama administration or any of the think tanks that specialize in trade issues has sought to do this sort of analysis, so we don’t have the answer to this question. Nonetheless, there is zero basis for assuming that the TPP on net liberalizes trade.
The piece also implied that Donald Trump was wrong in his debate exchange with Senator Paul Rand. Trump complained about the deal allowing China to export items to the U.S., while Paul pointed out that China is not in the TPP. In fact, Trump was exactly right. The weak rules of origin provisions will allow many items produced in China to be exported on favorable terms by going through one of the TPP member countries.
The piece concludes with a quote from President Obama:
“We’re making sure that labor standards and environmental standards are observed there just like they are here, … so that we create a level playing field and they don’t have the ability as effectively to undercut U.S. workers and U.S. businesses who are following higher standards by using child labor, for example, or dumping their pollution in the oceans in ways that U.S. businesses can no longer do.”
It is worth noting that the rules on child labor and pollution are not enforceable in the same way as the rest of the agreement. While private investors are empowered to directly file suits in special tribunals, there is no space for private action in these areas. Any enforcement would have to depend on the U.S. government taking steps to penalize countries that did not meet their commitments.
This has almost never been done and it is difficult to imagine that it will be done with the TPP. For example, while Colombia is required to protect the rights of labor organizers under its trade deal with the U.S., they are still routinely killed. The Obama administration points to progress in reducing the number of killings. This will almost certainly be the same story with the TPP, which is why labor and environmental groups are not pleased with the pact. It would have been useful to point this fact out.
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