As the U.S. election heats up, the Trans-Pacific Partnership is looking like a crime scene. Economists on both the right and left are investigating what’s killing Washington’s ambitious plan to show China who’s boss in the Asia-Pacific region. Let’s drop the suspense: No one whacked the TPP. Rather, America’s biggest-ever trade deal is committing suicide.
The conventional wisdom is that Donald Trump and Sen. Bernie Sanders have economic blood on their hands. Both presidential wannabes, the thinking goes, bowed to an anti-trade tsunami washing across America. So powerful is this populist wave that even Hillary Clinton, who once hawked the TPP as a top Cabinet member, now promises to scrap a deal President Barack Obama sees as pivotal to his Asian legacy.
But the likely death of the TPP bears the Obama administration’s fingerprints and its demise would actually be a good thing.
The TPP could still happen. A lame-duck session of Congress could always ratify it after the Nov. 8 election. Or a Clinton White House could change its mind and deepen ties with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The odds, though, are slipping away with each barb and counterpunch between Republican nominee Trump, Democrat Clinton and a decidedly grumpy electorate.
This column isn’t against trade, the benefits of which I’ve long embraced. Nor am I downplaying the need for the U.S. to reinforce its strategic interests in the most dynamic economic region. But the TPP, let’s face it, isn’t the way to do it either in substance or process. Here are five reasons Obama’s trade gambit went awry, and thankfully so.
Extreme opacity: When trying to take on China, it’s best not to emulate the worst excesses of the Chinese government. You know the TPP has a transparency problem when even members of Congress had to rely on Julian Assange and his WikiLeaks hackers for details. It’s truly surreal when John Kerry, Clinton’s successor as secretary of state, visits, say, Vietnam and says the TPP will bring “transparency” and “accountability” to opaque nations. An odd argument given the Orwellian secrecy surrounding a trade deal written more by corporate lobbyists than the government officials pushing it. The text wasn’t released until last November, after the period when tweaks, amendments and edits were still possible. If the TPP really is the job-creator Obama claims, why the clandestineness? Could the answer be that the TPP is great for CEOs and shareholders, bad for the average Joe?
Corporatocracy, here we come: Again, I’m not anti-free trade — just suspicious of a pact that may do more to weaken safeguards on food, pharmaceuticals, environmental protection and labor standards, and fatten Hollywood paychecks than narrow the gap between rich and poor. It’s based more on wish lists of Cisco Systems, General Electric, Johnson & Johnson and the Motion Picture Association of America than Nobel laureates like Joseph Stiglitz or lawmakers like Elizabeth Warren. The TPP’s tribunal process could officially make companies just as powerful as governments.
Obama failed to appreciate the combustibility of an electorate that fears “free trade” is an invitation to ship jobs abroad. It might have sold better if negotiator Michael Froman didn’t hail from Citigroup, a Wall Street giant with much to gain from the TPP. The same goes for Obama’s trust-us-we-know-what-we’re-doing attitude in the face of public disillusionment. The populist tsunami that Trump and Brexit represent won’t be placated by this corporatist land grab.
Malaysia? Seriously?: The company a trade collective keeps can speak volumes about the enterprise itself. As Sanders has pointed out, migrant workers in Malaysia too often work in “slave-like conditions,” a plight acknowledged by the U.S. government, human rights groups and Politifact.
Obama’s team claims the TPP is a Trojan horse of sorts. Once inside a nation’s wall, leaders have no choice but to reform. But the TPP will do little, if anything to end a 40-year-old affirmative action system that benefits the ethnic Malay majority.
At the same time, the corruption-allegation clouds hanging over Prime Minister Najib Razak’s government — and myriad investigations underway from Washington to Singapore — make Malaysia an awkward TPP fit.
Brunei, it’s also worth noting, in 2014 became the first East Asian nation to embrace Shariah law. Obama would’ve been wiser to court true reformers in Indonesia, the Philippines and much larger Asian players like South Korea. Now, weak TPP links abound.
Tokyo’s dodge: Without Japan, Asia’s No. 2 economy, TPP is a useless bulwark against China — and Prime Minister Shinzo Abe knows it. Japan has been sure to secure itself a variety of exceptions, including sensitive agricultural categories: barley, beef and pork, dairy products, sugar and wheat. Just a reminder that the TPP’s promise of full trade liberalization comes with myriad caveats, overlapping layers of fine print, loopholes and yet-to-be-decided details.
Meanwhile, Abe bet about 90 percent of his revival efforts on a deal with virtually zero chance of ending Japan’s malaise. Targeted tariff cuts won’t fix Japan’s demographic problems, change its debt trajectory, empower women, launch a startup boom or fuel a renewables revolution. Only bold deregulation can do that — not devaluating the yen. Abe’s failure to reform has given critics even more ammunition to bash the TPP.
America’s real challenge: The TPP, it’s often said, is less a trade deal than a geopolitical statement — an insurance policy on U.S. influence. The statement the U.S. should be making, though, is a domestic one. Obama did an impressive job avoiding a depression in 2009, getting unemployment below 5 percent since then and propelling the Dow Jones Industrial Average and S&P 500 to record highs. But Obama has mostly been forced to play defense, making the TPP his big attempt at offense.
If the U.S. is going to check China’s rise, it needs massive investments in infrastructure, energy innovation, education and work training. It must address the urban poor problem, incentivize executives to keep jobs in America and force multinationals to pay their fair share of taxes. An organic and domestic push to increase competitiveness would impress Beijing just as much as trade deals. Ignoring these headwinds would further fan today’s populist impulses and sow the seeds of someone ever worse than Trump. Were that to happen, China would win whether the TPP commits suicide or not.
William Pesek, executive editor of Barron’s Asia, is based in Tokyo and writes on Asian economics. www.barronsasia.com
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