The President’s Trade Deal Struggles Because It’s Bad Policy

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The Trans-Pacific Partnership is a 12-country NAFTA-style trade deal with two serious problems. It doesn’t work, and it’s bad for democracy.

First, everyone is in favor of trade. We can have good trade policy that raises living standards or bad trade policy that works fabulously well for a few, but very badly for everyone else.

More than any other policy, trade policy creates winners and losers.

For instance, pharmaceutical companies are big winners. Their expanded patent monopolies will cost everyone else billions. Nike is a winner because new investor protections will apply to its operations in Vietnam, where Nike already exploits the lowest cost labor they could find on earth. Electronics companies win big, because they use components made in Malaysia where 28% of the electronics workers are victims of forced labor. Financial companies can shield themselves from regulation.

The opposite is true for workers in the US, who would compete with imports from 6 TPP countries where human trafficking, forced labor and child labor fail to meet international standards - Brunei, Vietnam, Peru, Singapore and Mexico are in the “bad” category for labor standards, while Malaysia is in the “worst” category, according to US State Department evaluations.

Perhaps TPP’s greater failure is what is NOT in the deal. New jobs are NOT in the deal. Since NAFTA, we’ve heard false promises of millions of new jobs.

In real-life 21st Century globalization, we’ve lost millions of jobs. A factory is closed in Indianapolis, but we don’t reinvest that capital in our domestic economy. Instead, the capital and technology go to China. Investors win. Workers’ wages stagnate. New income goes almost entirely to the top 1%.

Since NAFTA, the US trade deficit has been around $500 billion per year – a total of $11 trillion in economic activity that could have been performed by 4 or 5 million workers in the US. Instead, our bad trade policy encouraged that work to move elsewhere.

Proponents of NAFTA-style trade deals promise we will share the gains from trade, raise labor standards and protect the environment. Our lived experience tells us otherwise.

Our US Trade Representative has never enforced environmental standards. Peru violated its commitments for environmental standards, and relaxed labor protectionsit needed to qualify for the US-Peru trade deal. Peru keeps its favorable access to our markets, we ignore its violations, and workers in the US lose their jobs. Honduras, Guatemala, and Colombia fall short on their commitments but suffer no meaningful consequences.

TPP misses another huge opportunity to share gains from trade, by ignoring currency manipulation. Economists tell us that trade deficits are resolved when currencies adjust. Of course, when China, Korea, Japan and other countries manipulate their currencies, workers across the US lose jobs to bad trade policy.

Companies who still produce in the US must also deal with value-added taxes (VAT), which are used by almost every country in the world except the US. That means Europe, Canada, Singapore, Mexico and other trading partners collect this tax when we ship our products into their countries. This raises the cost of our products. Goods and services produced in other countries and exported to the US receive a rebate of their VAT, which effectively lowers the cost of foreign products for US consumers. Our failed trade policy ignores this double cost penalty that US producers face in 21st Century globalization. VATs typically run 15-20%, while average tariffs are much lower – 4%.

TPP advocates tell us we need to set the rules so China won’t. That’s true. But, we should set good rules, not bad rules.

China is not in TPP, yet. They could join later. In the meantime, China has access to our markets, and China’s economy is already highly integrated into the markets of nearby TPP countries. China can export directly to the US, or through Malaysia, Singapore, Japan, Korea and other countries, which have trade deals. TPP sets bad rules. China, and US corporations that produce in China, will benefit. Companies in the US and their workers are worse off.

Consistent winners through all of this are US companies that move production to China, Vietnam, Malaysia, Peru or other low-wage countries. They benefit from weak labor and environmental protections, currency manipulation, border taxes like VAT, and they get to keep their profits offshore to avoid US taxes. Global companies can re-write patent and licensing rules to their advantage in bad trade agreements and they get preferred treatment in corporate-friendly trade tribunals when any country tries to change these rules in the public interest.

One piece of the President’s trade package endorses Malaysia’s persistent human trafficking, blocks action on currency manipulation, and restricts our ability to deal with climate change. That says a lot about whose interests are driving our bad trade policy.

Members of Congress recently voted to repeal a rule that tells American consumers where our beef, chicken, and pork come from. We lost a trade challenge on this “country-of-origin” labeling (COOL), because the World Trade Organization said COOL hurt foreign food producers. This is a clear example of how investor interests supersede public interests under bad trade deals. The same threats to democracy apply to health care, financial regulation, public services, “buy local” rules, environmental protections and labor laws. This is good for global investors and bad for Democracy.

About half of Congress has figured this out. In dramatic fashion, Congress temporarily blocked the path for TPP, although you would need an advanced degree in sausage-making to figure out what happened.

We know that President Obama took his Presidential motorcade across town to a baseball game to speak to House Democratic Leader Nancy Pelosi. We know that she made a dramatic floor speech the next day and shot out the tires on his trade bandwagon.

She also wrote a terrific editorial explaining how a better trade policy could share the gains from trade, AND balance the interests of global investors with workers and the environment, AND show everyone that an engaged democratic process creates better outcomes.

Her message is that our trade policy should do as much for workers and the environment as it does for investors.

Nancy Pelosi has shown great leadership by re-framing the trade issue. We should redesign the negotiating process to include all stakeholders, as she says. We should set national priorities that make sense to everyone, and broaden the question: whoelse in America should be winners in our trade policy?

Trade is worth doing, and it’s absolutely worth doing right.

  • Patricia Gray

    There is no mention in this article of what I think is the worst part of this very bad deal. Under the secret agreements of the TPP is the set up of a corporately appointed Tribunal which has the power to nullify any law or regulation in our nation—at the city, state or federal level–that might not allow the transnational corporations to get their expected profits. If we write a rule or regulation to protect the health of the people, the safety of our workers, the protection of our environment; this tribunal can sue the government that passed that law and demand that they either agree not to enforce the law, or pay the corporation their expected profits. Under this deal the profits of the trans national corporations are more important than the protection of the people and our environment. A treaty is ABOVE the laws of our nation. Any powers given under the TPP will limit the powers of our next President, and on into the future, the power to change this awful situation.

    We know how bad NAFTA effected the standard of living of our working people. We also know the rich are raking in huge profits. Seems like it is clear that the corrupt government under which we suffer cares a heck of a lot more about helping the rich get richer. That corrupt government is full of Democrats and Republicans who are the evil twins of greed. If this horror is not enough to finally get you mad as hell I don’t know what will. This ends any semblance of democracy and sovereignty in our nation. Check how your ‘representatives’ voted and swear to never vote for them again if they voted for this very bad “free trade” bill. Globalization is wonderful for the bosses who move jobs out of our nation to pay slave labor wages to the poor people in Asia. We need to keep people at work in this nation. You must buy American made products or buy second hand. Don’t feed the beast that is killing us.

  • kevinzeese

    Good point. We have covered the trade tribunals extensively, for years. Most recently we covered whether they violated Article III of the Constitution, the section on the court system.