Three Forgotten Arguments for the Transpacific Partnership

Last week’s Senate putsch brought trade to the headlines. But the real debate on the merits of the deal is yet to come.

As Trade Promotion Authority (TPA) legislation hit the floor of the Senate last week, trade policy reached the big time. TPA is important because it gives the Executive branch the authority to close negotiations on the Transpacific Partnership (TPP) and bring the deal to a final vote.

But TPA is also a bit like the weigh-in before a heavyweight fight; it’s not the actual bout, just an opportunity to size up the other guy. With a Republican-controlled Congress TPA was always more likely to go through than not, but the Transpacific Partnership’s fate is less clear. Like most policy, the devil is in the details. But supporters and detractors of the Transpacific Partnership haven’t begun to earnestly debate the merits of the agreement. Here are three arguments in favor of the deal.

1: It’s a Hedge Against China’s Slowdown.

No one knows how the story of China’s incredible economic boom will end. Professional investors disagree about the health of China’s economy and official economic data are sufficiently unreliable that even well-connected party members can be distrustful of them.

The consensus is that China’s economy is slowing down. The party has tried to turn the corner from an export-and-commodity strategy to developing an internal consumer market. But there are serious difficulties with that plan, not least that money is pouring out of China at a record pace ($300 billion in six months, according to Bloomberg). Given the uneven recovery since the crisis and continued financial fragility around the globe, a hard Chinese landing or real estate bubble burst would be unequivocally bad for middle-class Americans.

Chinese Equities Have Doubled in Six Months (Reuters). Meanwhile, VIP Tables at the Wynn Casino in Macau fell 52% year-on-year.

But that’s where the TPP comes in. The TPP could mitigate the Chinese slowdown by boosting Japan and bolstering overall economic stability in the region. The TPP is critical for Prime Minister Abe’s reform agenda, which has been a work in progress thus far. Successful conclusion of the TPP will almost certainly lead to an increase in Japan’s competitiveness and productivity. Getting Japan back on track from two decades of stagnation is a no-brainer from the perspective of global economic stability. Japan and China are major trading partners, despite their political and cultural disagreements, and strengthening the hand of Japanese consumers and companies can pick up the slack from slower Chinese growth. It is also undoubtedly in America’s economic and geopolitical interests to have a strong ally in Japan and Prime Minister Abe.

2: It Will be a Wake-Up Call for Europe.

Europe is struggling seven years after the crisis, and poised to muddle on in the same direction absent any real reason to do otherwise. The Transatlantic Trade and Investment Partnership (TTIP) is years away from completion, and there’s a sense in the US (rightly or wrongly) that Europe currently lacks the unity required to genuinely make progress on a deal.

If the US signs the TPP, it could be the impetus for a desperately-needed wake-up call to the political and economic leadership of Europe. The choice will be clear: can Europe afford to go it alone and be left out in the cold from growing markets in Asia and the US?

Passage of TPP without a US-EU deal would be disasterous for Europe, as the US refocused its efforts to the Asia-Pacific, which has the greatest numbers of citizens poised to enter the middle class in this century. Selling TTIP after the conclusion of TPP is a colossally easier task for Europe’s leaders and could spark the sort of self-reflection needed to put the EU on the right path again.

The economic argument may not persuade Europe, but the geopolitical argument should. The postwar international order gave Europe pride of place in international institutions backed by US support. But as the Bretton Woods and U.N. system face competitors, it is not clear what Europe’s geopolitical role in the 21st Century will be. And that’s bad for European and American interests over the long-run.

3: It Puts America Back on the Map.

Supporters of the Administration’s trade policy have not done a terrific job thus far informing Congress or the public about how the TPP fits into the US’ long-term economic strategy. But the Administration has quietly been making a compelling argument, what US Trade Representative Michael Froman calls the “production platform of choice”.

Envision the world a day after TPP and TTIP have been signed and ratified. Suddenly, the US would be squarely in the middle of two economic blocs that together cover 2/3 of global GDP. Alongside Canada, the US would have a highly privileged position as the sole bridge between Asian and European markets. And this could benefit the US in ways that go well beyond our current pole position in NYC-condo-denominated reserves for international capital, and actually create jobs.

Source: Peterson Institute for International Economics

The strategy is this. Say you are a German manufacturer of high-end products looking to expand to new markets. Your products are intricate, and you know that your employees must possess knowledge of engineering and perhaps some basic computer programming. You are also concerned about giving away your privately-held company’s special sauce, having your intellectual property stolen, and your product copied cheaply. And finally, you know energy costs are about a quarter of your overhead if you build your plant in Europe, making your product too pricey to realistically take hold in middle-income countries.

EU-US Gas Prices for Industry (European Commission)

The solution? Make it in America. The US’ competitive edge in the future will be our high human capital and innovation, intellectual property protection, and cheap energy resources — and thanks to TPP and TTIP, guaranteed market access. That’s an ace in our deck.

If this argument is right, it is a principal retort to those who think that TPP is just NAFTA redux, a “giant sucking sound” of jobs fleeing the country to lower-income states. That isn’t likely to happen on its own since those low-end manufacturing jobs are likely gone for good, but the strategy of putting the US right in the middle of a large and harmonious bloc between the Asian and European continents could reverse those trends, and bring quality 21st Century jobs to America.

End.