Friday, May 13, 2016

President Obama, the United States and the Trade Cold War

Updated January 2017

While the world focuses on Donald Trump's abandonment of the Trans-Pacific Partnership, a 2016 editorial in the Washington Post by former President Barack Obama looked at his views on international trade.  In his editorial, Obama clearly states why he feels that the TPP is of critical importance to America's role on the world stage and why the agreement must be implemented.

In case you've forgotten, the TPP is a trade agreement that was signed on February 4, 2016 by 12 Pacific Rim nations which cover roughly 40 percent of global GDP.  The signatories include Canada, Chile, Peru, Mexico, New Zealand, Australia, Singapore, Brunei, Vietnam, Malaysia, Japan and, of course, the United States, the biggest economy in the group.  Other nations have shown interest; South Korea, Taiwan, the Philippines, Thailand, Laos, Indonesia, Cambodia, Bangladesh, Sri Lanka and even India which is not part of the Pacific Rim.   You will notice that China, the world's second largest economy, is missing from the list.  Key to the United States is the elimination of tariffs that other nations have placed on 18000 American goods and almost all farm products.

Additionally, in April 2016, another massive trade deal was being negotiated.  The Regional Comprehensive Economic Partnership (RCEP) includes 16 nations which cover almost 30 percent of global GDP, several of them also being signatories of the TPP.  Nations currently negotiating the RCEP include China, the largest economy in the group, Australia, Cambodia, India, Japan, Laos, Myanmar, the Philippines, Thailand, Brunei, Indonesia, South Korea, Malaysia, New Zealand, Singapore and Vietnam.  Here is an interesting commentary about the RCEP from Australia's Trade Minister:

"RCEP brings together the economic powerhouses in our neighbourhood with China, Japan, Korea, India, New Zealand and the ten Member States of ASEAN. These countries – including the economic giants of the Indo-Pacific region – cover nine of Australia’s top 12 trading partners and almost 30 per cent of global GDP.

The potential of RCEP is staggering. RCEP countries currently account for around 60 per cent of our two-way trade, 70 per cent of our exports and 15 per cent of our two-way investment. RCEP will drive Australian jobs and growth as it creates more opportunities for local businesses to provide goods and services to the region’s rapidly growing middle classes."

That sounds like typical boilerplate political commentary on every trade deal that was ever signed, doesn't it?      

With that background, let's look at some excerpts from President Obama's editorial on America's role in international trade.  All bolds are mine.

"Over the past six years, America’s businesses have created more than 14 million new jobs. To keep this progress going, we need to pursue every avenue of economic growth. Today, some of our greatest economic opportunities abroad are in the Asia-Pacific region, which is on its way to becoming the most populous and lucrative market on the planet. Increasing trade in this area of the world would be a boon to American businesses and American workers, and it would give us a leg up on our economic competitors, including one we hear a lot about on the campaign trail these days: China.

Of course, China’s greatest economic opportunities also lie in its own neighborhood, which is why China is not wasting any time. As we speak, China is negotiating a trade deal that would carve up some of the fastest-growing markets in the world at our expense, putting American jobs, businesses and goods at risk.

This past week, China and 15 other nations met in Australia with a goal of getting their deal, the Regional Comprehensive Economic Partnership, done before the end of this year. That trade deal won’t prevent unfair competition among government-subsidized, state-owned enterprises. It won’t protect a free and open Internet. Nor will it respect intellectual property rights in a way that ensures America’s creators, artists, filmmakers and entrepreneurs get their due. And it certainly won’t enforce high standards for our workers and our environment...

Fortunately, America has a plan of our own that meets each of these goals. As a Pacific power, the United States has pushed to develop a high-standard Trans- Pacific Partnership, a trade deal that puts American workers first and makes sure we write the rules of the road for trade in the 21st century...

I understand the skepticism people have about trade agreements, particularly in communities where the effects of automation and globalization have hit workers and families the hardest. But building walls to isolate ourselves from the global economy would only isolate us from the incredible opportunities it provides. Instead, America should write the rules. America should call the shots. Other countries should play by the rules that America and our partners set, and not the other way around.

That’s what the TPP gives us the power to do. That’s why my administration is working closely with leaders in Congress to secure bipartisan approval for our trade agreement, mindful that the longer we wait, the harder it will be to pass the TPP. The world has changed. The rules are changing with it. The United States, not countries like China, should write them. Let’s seize this opportunity, pass the Trans-Pacific Partnership and make sure America isn’t holding the bag, but holding the pen.

I found Obama's comments on China particularly interesting given that this is what Bill Clinton had to say about China's accession into the World Trade Organization back in 2000: 

Here are some excerpts from his March 2000 letter to Congress regarding the importance of trade with China:

"We give up nothing with this Agreement.  As China enters the WTO, the United States makes no changes in our current market access policies.  We preserve our right to withdraw market access for China in the event of a national security emergency.  We make no changes in laws controlling the export of sensitive technology.  We amend none of our trade laws.  In fact, our protections against unfair trade practices and potential import surges are stronger with the Agreement than without it.

Our choice is clear.  We must enact permanent NTR for China or risk losing the full benefits of the Agreement we negotiated, including broad market access, special import protections, and rights to enforce China's commitments through WTO dispute settlement.  All WTO members, including the United States, pledge to grant one another permanent NTR to enjoy the full benefits in one another's markets.  If the Congress were to fail to pass permanent NTR for China, our Asian, Latin American, Canadian, and European competitors would reap these benefits, but American farmers and other workers and our businesses might well be left behind." (my bold)

We all know how that agreement turned out for those who worked in America's manufacturing sector, don't we:

Let's look at one additional excerpt from the Obama editorial:

"If we don’t get the TPP done, American goods will continue to face high tariffs and other trade barriers in the region. American businesses will lose competitive access to Asian markets, which would mean fewer of the cars our autoworkers manufacture would make it to growing markets, more of our farmers’ and ranchers’ products would run into barriers abroad, and small-business owners hoping to sell their goods abroad would still find themselves ensnared in red tape. If we don’t get the TPP done, employers across America will lose the chance to compete with other countries’ companies on a level playing field. And when American workers and businesses compete on a level playing field, no one can beat us..."

History repeats itself.  It's just the players that change.

An interesting graphic from CNN shows us the looming "trade cold war".  Here's what the global economy looked like in 2008:

Here's what it looked like in 2015:

Here's what it is expected to look like in 2020:

China's power on the world's economic stage is growing by leaps and bounds and, if projections hold, will be by a wide margin the second largest economy in the world, being larger than the next four largest economies in total.

I find it particularly appalling that former president clearly stated that America should dictate the rules governing global trade.   Obviously, the lessons taught by the history of American-led trade deals have gone unheeded.  The haste of the Obama Administration to sign the Trans-Pacific Trade Agreement was being driven by one factor; the pathological need for the United States to beat China at its own game and start a "trade cold war".  The Clinton trade deal with China shows how well that turned out for America.  Apparently, no one in Washington cares.

1 comment:

  1. It is not rational to think that increased trade creates a lot more jobs. While it expands ones market allowing a company to grow, the area where the goods are shipped does not enjoy the creation of jobs for making that same product.

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