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Free trade deals are one of the hallmarks of globalization. They allow countries to reduce trade barriers, allow for a freer flow of goods and services, and are tool of “soft” diplomacy. The 1990s and 2000s was an era for American free trade accords as the United States worked with Canada and Mexico to create the North American Free Trade Agreement (NAFTA) and then signed additional agreements with another eighteen countries. While proponents argue that these deals will allow consumers to acquire cheaper goods and that the deals serve America’s geopolitical interests, opponents allege that they strengthen the power of corporations at the expense of the middle class and that they produce sizable job losses. Growing trade skepticism could impair the implementation of the Trans-Pacific Partnership (TPP), a free trade accord between the United States and eleven other nations in the Pacific Rim. President Barack Obama is a supporter of the TPP and is pushing Congress to grant him trade promotion authority (TPA) to conclude the deal. Ironically, Republicans who have been an obstruction to much of the President’s agenda for the last six years are his biggest allies in the TPP fight, but Obama will likely have to win over some moderate Democrats to overcome opposition from unions and progressives to make the TPP a reality.
This topic brief will discuss the tenets of the proposed TPP, why its supporters think the deal is in America’s best interest, and then analyze arguments being made against the TPP.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
What is the TPP?
The Trans-Pacific Partnership (TPP) envisions a free trade zone that encompasses several significant nations of the Pacific Rim. The goal of the TPP is to lower trade barriers such as tariffs and quotas among members, while also providing a framework to better protect intellectual property and to adjudicate disputes between foreign investors and nation-states. The TPP would include twelve nations: the United States, Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. I would highly encourage extempers to memorize the nations that would be affiliated with the TPP because it would be an impressive feat to recite that in a round for your judge(s). The BBC on April 29 and The Wall Street Journal on April 30 write that the TPP would cover 800 million people, twice that of the European Union (EU), and that the nations involved represent 40% of the world’s economy. If the TPP came to fruition, it would constitute one of the largest trade accords in the world, possibly allowing for more integration among the signatories in the future.
The BBC explains that the TPP grew out of negotiations in 2005 between Brunei, Chile, New Zealand, and Singapore. These nations constructed a trade zone that removed tariffs on most goods, while also providing cooperation on employment practices, intellectual property, and competition policies. The TPP would emulate this accord by seeking to reduce trade barriers, while also enacting ways to protect labor rights and the environment. This is to counter criticisms of past trade deals that overlooked labor and environmental protections, thereby allowing corporations to relocate to nations with fewer regulations.
The TPP gets so much attention because Japan and the United States seek to be part of the accord. Although Japan’s economy has languished for the last two decades, it is still the world’s third-largest economy. The United States currently has free trade agreements with many of the countries in the proposed TPP – Canada, Chile, Mexico, Peru, and Singapore – but it does not have a free trade agreement with Japan. Under the proposed terms of the TPP, the United States would lower some of its tariffs on Japanese cars and automotive parts, while Japan would begin liberalizing its agricultural sector. The Japanese economy has very high tariffs on imports of beef and rice, with rice tariffs averaging 800%. What this means is that if a country tried to sell rice in Japan they would have to pay a tax on eight times its value. For example, if someone wished to sell rice at $10 these tariffs would require them to pay a tax of nearly $80. Since companies often try to offload costs onto consumers, these high tariffs make foreign agricultural imports uncompetitive in Japan. Part of this is due to politics as Japan’s powerful Liberal Democratic Party (LDP) is bolstered by agricultural interests. The American farm lobby wants into Japan, so the TPP would help provide a way to do that, while simultaneously helping Japanese companies acquire a stronger foothold in American auto markets. PBS explains on April 29 that Japanese Prime Minister Shinzo Abe visited Washington, D.C. last week in an attempt to convince legislators that the TPP was in both nations best interest. His speech was the first time that a Japanese prime minister addressed a joint session of Congress.
It was hoped that the TPP would be concluded in 2012, but some hurdles have remained that complicate the implementation of the deal. As The Wall Street Journal article previously cited explains, nations have yet to agree on how far they will lower barriers on sensitive trade goods. These include Japan’s agriculture markets, America’s auto sector, and Canada’s dairy market. Furthermore, some of the nations in the TPP such as Vietnam and Malaysia have state-run enterprises and it is not yet clear how the TPP will deal with nations that have industries not vulnerable to a free market system. Another obstacle is the fact that President Obama does not have trade promotion authority (TPA), which is also referred to as “fast track trade authority.” This power would enable the President to conclude a trade deal and then submit it to Congress for an up or down vote. Unlike other treaties, though, Congress would not have the power to amend a deal. This is important because without TPA, President Obama could submit the TPP accord to Congress but then it could be amended to satisfy the interests of various constituencies. If that happened, the TPP would have to go back to the other eleven nations and if they found something objectionable they could pull out of the agreement. In other words, without TPA the agreement might die because of alterations that would anger other nations. Only Congress can give the President this power and President George W. Bush enjoyed TPA for much of his tenure. However, growing skepticism about whether it is in America’s best interest to pursue free trade agreements has hindered the ability of President Obama to secure TPA from Congress.
One of the difficulties for extempers when speaking about the TPP is that it is not yet a public document. Critics of President Obama allege that the TPP is a “secret deal,” but U.S. Trade Representative Michael Froman argues that the TPP is currently classified as it part of ongoing negotiations. The Washington Post writes on April 28 that legislators can see the text of the TPP, but to ensure its classified status they are only allowed to see it with a trade official and they cannot have any aides, notes, or experts with them when they view it. Furthermore, legislators are not allowed to make copies of the proposed accord and they are legally barred from repeating details about it since that would be leaking classified information (which carries significant criminal penalties). All that is known about the TPP is its size and scope, as well as the fact that there is a provision to establish a foreign tribunal to adjudicate disputes between foreign investors and nation-states that impose regulations that could be harmful for their profits. Therefore, when giving speeches on the TPP an extemper will have to talk more in the abstract than they would like because the exact text of the accord has yet to be made public.
Supporter’s Arguments for the TPP
Those who support the TPP couch some of their arguments in the same terms as those used to support NAFTA and other major trade agreements over the last few decades. These voices argue that free trade is a net positive for the United States as it is able to lower consumer prices (thereby helping to keep inflation steady), that it may make U.S. exports more competitive than they are right now since they would be able to overcome existing trade barriers in other nations, and that it will strengthen the American service sector. Although these voices concede that American manufacturing might be hurt by the accord, they argue that free trade deals actually spur more innovation in the economy. This is one reason given for why the outsourcing (relocation) of American jobs overseas is positive because it allows a nation to rid itself of obsolete jobs and reform itself economically. Time writes on April 27 that although manufacturing supporters criticize trade deals such as the TPP, manufacturing is now only 11% of the U.S. economy in terms of employment. In contrast, services are 66% of the economy so ways to bolster that sector, something that proponents of the TPP say it will do, should benefit the U.S. economy at large. Economists estimate that American manufacturing would lose $44 billion under the TPP, but services would make a net gain of $79 billion.
One of the arguments used by President Obama and other TPP supporters is that the U.S. needs a trade accord in the Pacific Rim to counter the growing power of China. Many of the proposed signatories of the TPP such as Japan, Malaysia, and Vietnam are wary of China’s increased assertiveness in East and Southeast Asia so those anxieties have helped the U.S. make a pitch for the TPP. The Wall Street Journal article previously cited notes that President Obama has couched the TPP as a way for the United States to write the trade rules of the Pacific rather than China, which has a history of violating intellectual property rights, limiting international investment, and controlling economic development through state planners. Indeed, China, according to The New York Times in an article published in The Economic Times of India on April 29, is trying to propose its own regional free trade agreements, which include ASEAN + 6 (covering all members of the Association of Southeast Asian Nations, China, Japan, South Korea, Australia, New Zealand, and India) and the Silk Road (seeking the development of trade points and infrastructure development that would link major cities such as Beijing, Urumqui, Samarkand, Tehran, Istanbul, and Moscow). The Chinese government has been wary of the TPP, partly because the U.S. did not ask it to join and partly because they see that it could potentially benefit surrounding states whose businesses can profit from a free trade zone at the expense of Chinese companies. For example, the TPP might give Japanese companies better access to high-tech goods in the United States, thereby inhibiting China’s goal of acquiring a foothold in the global telecommunications industry. The New York Times adds that China may not want to join even if the U.S. was pressing it to do so because it may have to reduce some of the high tariffs that it was able to keep after joining the World Trade Organization (WTO) in 2001. Investor’s Business Daily adds on May 1 that if the U.S. becomes protectionist on the trade issue then it would cede ground to growing powers such as China in the international marketplace and that would come to hurt its national and economic security. After all, the United States cannot push itself unilaterally into the economies of other countries. Instead, it must establish rules that enable it to break down trade barriers against its goods and the TPP can work to do this.
Others argue that the TPP is a powerful tool for restoring America’s relationship with other nations in Southeast Asia such as Vietnam. Last week was the fortieth anniversary of the fall of Saigon, which constituted America’s final retreat from South Vietnam as it fell to communist forces. Vietnam’s government remains communist and it has an uneasy relationship with the U.S. due to the history of the Vietnam War. However, ties are growing and the TPP might be a way to solidify a new relationship. The Diplomat writes on April 28 that late last year the U.S. lifted its arms embargo on Vietnam, partly as a response to growing Chinese aggressions in the South China Sea. The TPP would have significant benefits for Vietnam as The National Journal notes on April 28 that it would see a $46 billion increase in GDP by 2025 under the deal, allowing for an additional 13.6% growth in its GDP. This is higher than any other nation under the accord. The Diplomat also writes that the TPP would force the Vietnamese government to move toward more liberalized economic policies and that the rules of the agreement would force the country’s state-owned enterprises to become more transparent and that labor unions would prosper under the TPP’s labor standards. Economist Tyler Cowen argues that there is so much to be gained by Vietnam from the TPP that American policymakers should pass it for that reason alone as closer relations between the two nations would enhance America’s geopolitical position in Southeast Asia.
Also, as noted earlier in this brief, the U.S. agricultural industry would benefit by unlocking trade markets in Japan. The Wall Street Journal explains on April 26 that despite high Japanese tariffs on farm goods, the United States ships $9 billion in corn, dairy, eggs, meat, poultry, rice, and wheat there each year. This number would rise exponentially if tariffs that are in the hundreds of percentage points are significantly slashed or eliminated altogether. To be sure, the tradeoff for helping the farm lobby is that tariffs would have to slashed on automobiles and auto parts, as Japan sent $50 billion worth of those to the U.S. last year, but supporters of the TPP such as Agriculture Secretary Tom Vilsack appear to think that the costs outweigh the benefits.
Finally, President Obama has tried to distance the TPP from past U.S. trade deals. He has railed against members of his own party such as Massachusetts Senator Elizabeth Warren that chide the TPP as a “secret deal” and he reminds the public that he campaigned against trade deals such as NAFTA in his 2008 presidential campaign. According to The Washington Post on April 26, President Obama has dubbed the TPP “middle class economics” and argues that it will include significant environmental and labor rules that Democrats argued in the past were absent from previous free trade deals. One of the problems the President has had in making his case, though, is that the TPP is still under negotiation so he cannot be specific about what these labor and environmental rules will look like. Critics say that even with these rules that they will probably not go far enough, but the White House says that in a worst-case scenario the rules are a good first step. President Obama has also explained that the labor and environmental rules can help protect American jobs by ensuring a greater “fair trade” standard where all signatory nations are competing on a level playing field.
Critical Arguments Against the TPP
As noted at the beginning of this brief, President Obama has encountered significant opposition from within the Democratic Party, especially from progressives, on the TPP. This is one reason that the President may find it difficult to secure TPA, which would be vital to ensuring the success of the TPP, from Congress. Reason explains on April 30 that he can probably get 200 votes from House Republicans, but that means he needs at least seventeen Democratic votes. These may be hard to come by as the AFL-CIO is allegedly putting pressure on House Democrats, saying that if they vote with the President that they will not receive union support in 2016. Interestingly enough, opposition to granting President Obama TPA has united the Tea Party with leftist progressives. The Boston Globe reveals on April 20 that Tea Party Republicans oppose giving President Obama TPA because that would be strengthening executive power that they allege the President has used irresponsibly during his tenure in office. Meanwhile, leftist progressives are against TPA because that would help pass the TPP, an agreement that they think would hurt American workers and wage growth. The Washington Post article cited from April 28 notes that the White House is using all of its power to lobby Democrats to support the President’s trade initiative, with some saying that it is the most pressure they have faced from the White House in six years. Progressives lament that President Obama is wasting his time trying to secure TPA when he could have done that for other major initiatives such as raising the minimum wage, making people eligible for Medicare at fifty-five, or strengthening consumer protections in the Dodd-Frank financial legislation.
The dispute over the TPP has also bled into 2016 presidential politics as former Maryland Governor Martin O’Malley and Vermont Senator Bernie Sanders oppose the TPP on the grounds that it is a bad deal for American workers and for the economy at large. These sentiments have been echoed by New York City Mayor Bill de Blasio, who The New York Daily News reports on April 27 thinks the TPP is a “raw deal” that prejudices corporations at the expense of regular people. Former Secretary of State Hillary Clinton has a troubled history on trade that may give an opening to her opponents. U.S. News and World Report writes on April 28 that she has flip flopped several times on the issue. For example, when she served as first lady she supported NAFTA, but then said it was a flawed agreement when she ran for the Senate in 2000. While serving in the Senate she supported bilateral trade treaties with potential TPP members such as Singapore and Chile, but she opposed the Bush administration’s plans for a Central American Free Trade Agreement (CAFTA). When running for the presidency in 2008 she went on record opposing trade deals with Colombia, Panama, and South Korea, possibly attempting to avoid being outflanked by then-Senator Obama, who came out against NAFTA in the campaign and said he would “fix it.” However, when she joined the Obama administration as Secretary of State Clinton proceeded to support the Colombian and South Korean deals and then supported the idea of the TPP. Now, Clinton says that any trade deal must create American jobs, raise wages, help national security, and also create economic growth. The Huffington Post writes on April 30 that Clinton is against the part of the TPP that allows investors to sue governments over regulations that inhibit their profit potential. This confusing history on trade may hurt Clinton’s standing with progressives, who are already suspicious of her and want a presidential candidate with a stronger history of supporting leftist policy aims.
Critics of the proposed TPP allege that it would be a net loser for the United States in terms of economic growth, especially relative to the other nations that would be signatories to the agreement. The National Journal article previously cited points out that while Vietnam, Malaysia, and Japan will see increases of 13.6%, 6.1%, and 2.2% in their GDPs under the TPP by 2025, the United States will only see 0.4% GDP growth under the agreement. Furthermore, The Huffington Post writes on April 27 that the United States has been hoodwinked by past free trade deals as between 2009 and 2014 the U.S. ran a trade deficit of $130 billion, which weighed on job creation, economic growth, and put downward pressure on wages. Also, while exports added $760 billion to the U.S. economy between 2009 and 2014, accounting for 33% of American economic growth, imports grew faster at $890 billion. Critics of the TPP argue that since it would allow the import of more foreign products such as Vietnamese textiles or Japanese auto parts into the United States this trade deficit would continue to widen and would hurt the U.S. economy. The Washington Post article previously cited from April 28 also explains that the U.S. has had $11 trillion in deficits related to trade deals thus far in the twenty-first century, and that since 2000 63,000 factories have been shut down leading to millions of job losses. Opponents of the TPP argue that this trend would continue as jobs would move to cheaper locations and it would become more difficult for the U.S. to build a vibrant, full-employment economy that had living wages for its workers.
Another argument launched against the TPP is centered on its provision of a foreign tribunal to handle investor-state dispute settlements (ISDS). These happen if a foreign investor believes that a governmental regulation or law negatively affects their profits. Multinational corporations are using ISDS more regularly, with the most notable case being Philip Morris suing the Australian government after it passed a regulation prohibiting cigarette companies from putting a brand on their product. Although proponents argue that ISDS suits are not a problem since they are small in number, critics allege that they will grow under the TPP. The Huffington Post article from April 30 notes that while there were less than one hundred filings of ISDS cases prior to 2000, in 2010 there were fifty-eight. Unlike WTO rules, which mandate that a business get its host government to take the case to a WTO tribunal, the TPP allows a foreign entity to sue on its own, thereby jeopardizing future health, labor, and environmental regulations that governments may seek to impose. It should be clarified that the tribunals to handle ISDS do not have the power to overturn national laws, but they do have the power to levy fines against offending governments, which could lead to countries being hesitant to pass legislation they think could be challenged by ISDS tribunals. The Huffington Post alleges that this is already happening as some countries have halted anti-smoking rules due to lawsuits by cigarette firms. Richard Fiesta, the executive director of AARP, a powerful lobbying group for older Americans, writes in The Hill on April 27 that ISDS cases could also undermine American laws that allow Medicaid to have a preferred drug list of what it will reimburse doctors and hospitals for. Medicaid’s lists tend to favor the use of generic drugs, but Fiesta argues that ISDS cases could lead to lawsuits by pharmaceutical firms that allege unfair discrimination against their products. Forbes adds on May 1 that Doctors Without Borders is also critical of the TPP because its push for intellectual property, in part via ISDS, could lengthen the time pharmaceutical firms enjoy biological data protection, meaning they do not have to share the design for a drug until a twelve year window has expired. Forbes alleges that the AARP and Doctors Without Borders are scaremongering because biological data protection is important to ensure innovation as firms that develop drugs need to recover profits. Still, The Boston Globe reports on April 28 that progressives and leftist organizations believe that ISDS suits could harm American sovereignty, which places them with other conservatives that are wary of international influence on American policy via the United Nations (UN) or the International Criminal Court (ICC).
President Obama hopes that the TPP can be finalized and concluded by June, but doing so will require that Congress grant him the TPA needed to get the deal done. Other nations will be hesitant to make trade concessions if the U.S. cannot assure them that the TPP will not be modified by Congress. Finalizing a deal also assumes that American trade negotiators can conclude negotiations on sensitive issues with major countries that are part of the accord such as Japan and Canada. If it comes to fruition, the TPP could be a major victory for the U.S. free trade lobby, while simultaneously cementing American ties with East and Southeast Asia. However, to pass the accord it will be important for President Obama to sell the agreement’s economic benefits and corral dissident voices within his own party that are turning toward trade protectionism as the best way to protect the American middle class.