Lessons From the Demise of the TPP

Yves here. This post makes a point at the end in passing about the value of multilateralism, even though the TPP was otherwise a very bad scheme on multiple levels. This serves as a reminder to mention something I’ve neglected to say. Trump’s plan to enter into bi-lateral trade deals (after supposedly tearing up extant pacts) is another sign of him not knowing what he does not know. As we’ve stressed in the context of Brexit, trade agreements take a long time to negotiate, typically because they also include services, and those take way longer to sort out than the physical goods side. Moreover, every country has limited staff who can work on these pacts, usually multiple agreements being negotiated at the same time, and a political approval process of some sort. The result is it takes many years for even a single deal to get done. Trump like the Tories seems to labor under the misapprehension that the process is much faster.

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Inter Press Service and cross posted from Triple Crisis

President-elect Donald Trump has promised that he will take the US out of the Trans-Pacific Partnership Agreement (TPPA) on the first day of his presidency. The TPP may now be dead, thanks to Trump and opposition by all major US presidential candidates. With its imminent demise almost certain, it is important to draw on some lessons before it is buried.

Fraudulent Free Trade Agreement

The TPP is fraudulent as a free trade agreement, offering very little in terms of additional growth due to trade liberalization, contrary to media hype. To be sure, the TPP had little to do with trade. The US already has free trade agreements, of the bilateral or regional variety, with six of the 11 other countries in the pact. All twelve members also belong to the World Trade Organization (WTO) which concluded the single largest trade agreement ever, more than two decades ago in Marrakech – contrary to the TPPA’s claim to that status. Trade barriers with the remaining five countries were already very low in most cases, so there is little room left for further trade liberalization in the TPPA, except in the case of Vietnam, owing to the war until 1975 and its legacy of punitive legislation.

The most convenient computable general equilibrium (CGE) trade model used for trade projections makes unrealistic assumptions, including those about the consequences of trade liberalization. For instance, such trade modelling exercises typically presume full employment as well as unchanging trade and fiscal balances. Our colleagues’ more realistic macroeconomic modelling suggested that almost 800,000 jobs would be lost over a decade after implementation, with almost half a million from the US alone. There would also be downward pressure on wages, in turn exacerbating inequalities at the national level.

Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Thus, while most politically influential US corporations would do well from the TPP due to strengthened intellectual property rights (IPRs) and investor-state dispute settlement (ISDS) mechanisms, US workers would generally not. It is now generally believed these outcomes contributed to the backlash against such globalization in the votes for Brexit and Trump.

Non-Trade Measures

According to the Peterson Institute of International Economics (PIIE), the US think-tank known for cheerleading economic liberalization and globalization, the purported TPPA gains would mainly come from additional investments, especially foreign direct investments, due to enhanced investor rights. However, these claims have been disputed by most other analysts, including two US government agencies, i.e., the US Department of Agriculture’s Economic Research Service (ERS) and the US International Trade Commission (ITC).

Much of the additional value of trade would come from ‘non-trade issues’. Strengthening intellectual property (IP) monopolies, typically held by powerful transnational corporations, would raise the value of trade through higher trading prices, not more goods and services. Thus, strengthened IPRs leading to higher prices for medicines are of particular concern.

The TPP would reinforce and extend patents, copyrights and related intellectual property protections. Such protectionism raises the price of protected items, such as pharmaceutical drugs. In a 2015 case, Martin Shkreli raised the price of a drug he had bought the rights to by 6000% from USD12.50 to USD750! As there is no US law against such ‘price-gouging’, the US Attorney General could only prosecute him for allegedly running a Ponzi scheme.

“Medecins Sans Frontieres” warned that the agreement would go down in history as the worst “cause of needless suffering and death” in developing countries. In fact, contrary to the claim that stronger IPRs would enhance research and development, there has been no evidence of increased research or new medicines in recent decades for this reason.

Corporate-Friendly

Foreign direct investment (FDI) is also supposed to go up thanks to the TPPA’s ISDS provisions. For instance, foreign companies would be able to sue TPP governments for ostensible loss of profits, including potential future profits, due to changes in national regulation or policies even if in the national or public interest.

ISDS would be enforced through ostensibly independent tribunals. This extrajudicial system would supercede national laws and judiciaries, with secret rulings not bound by precedent or subject to appeal.

Thus, rather than trade promotion, the main purpose of the TPPA has been to internationally promote more corporate-friendly rules under US leadership. The 6350 page deal was negotiated by various working groups where representatives of major, mainly US corporations were able to drive the agenda and advance their interests. The final push to seek congressional support for the TPPA despite strong opposition from the major presidential candidates made clear that the main US rationale and motive were geo-political, to minimize China’s growing influence.

The decision by the Obama administration to push ahead with the TPP may well have cost Hillary Clinton the presidency as she came across as insincere in belatedly opposing the agreement which she had previously praised and advocated. Trade was a major issue in swing states like Ohio, Michigan and Pennsylvania, where concerned voters overwhelmingly opted for Trump.

The problem now is that while the Obama administration undermined trade multilateralism by its unwillingness to honour the compromise which initiated the Doha Development Round, Trump’s preference for bilateral agreements benefiting the US is unlikely to provide the boost to multilateralism so badly needed now. Unless the US and the EU embrace the spirit of compromise which started this round of trade negotiations, the WTO and multilateralism more generally may never recover from the setbacks of the last decade and a half.

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44 comments

  1. ifthethunderdontgetya™³²®©

    The decision by the Obama administration to push ahead with the TPP may well have cost Hillary Clinton the presidency

    No doubt. But the Wall St. Dems are going to keep blaming Bernie Bros and the Russians. And they’ll keep helping themselves to that sweet corporate payola.
    ~

      1. B1whois

        I see it as karma. TPP may have been the worst thing ever tried by a US President, to date. I didn’t realize that so many people understood it though, at least I didn’t get that impression in central California.

      2. Oregoncharles

        Lori Wallach doing a rather ironic victory dance. Worth spreading around the Dempologist sites: “here’s the real reason.”

        1. Left in Wisconsin

          Lori Wallach is no dummy. She should run for president in 2020. As a Democrat. No kidding. She is way better than Bernie. Said it here first.

  2. Dave

    Not knowing what he does not know may be beneficial. To be freed from the straitjacket of political sophistry that has led to previous disasters for American workers is, perhaps, a positive.

    I’d be willing to pay twice as much for Chinese junk as I do now.
    Corporations, Hollywood, Big Pharma and Silicon Valley will be hurt? Tough luck, they are there to make profits and are no friend of American workers. Might as well say it, because of their behavior, they are the enemy of progress for workers.

    Short version:
    Trump has done more for American workers and has obtained more net benefit out of the car companies, before he’s even sworn in than the Clintons did in ten collective years of ‘public service’.

    1. a different chris

      >I’d be willing to pay twice as much for Chinese junk as I do now.

      And I don’t think you would even have to… every time you can manage to look at what it costs* to make something in China instead of the USA, and compare it to the retail price, you get a real “whoa”.** The price is just enough less to drive the US manufacturer themselves out of business, most of the money *does* stay in the US but it goes to the top 0.1%.

      This is more about control of the proles than economics, sometimes I think.

      *like anybody can totally figure it out given the Chinese state’s involvement in everything, but we can make decent guesses

      **I know that American mfg cost is generally 1/2 of retail price and sometimes as low as 1/3. I’m talking about 1/10 to 1/20th for Chinese goods.

      1. djrichard

        Excellent point. Basically will corporations pass along increased costs to consumers?

        Take a look at what happened when the price of oil spiked. Corporations that had healthy profit margins in general didn’t pass on to consumers their increased costs when oil was part of their COGS (cost of good sold). Though in contrast, airlines did. At the time Airlines had low profit margins. But I suspect their pricing power is less elastic regardless – their 10Ks show their entire business model is metric’d on the price of fuel.

        1. scraping_by

          Offshoring isn’t about lower consumer goods prices. The cost of labor in a mass-produced product is small, often trivial. That’s what mass production is designed to do.

          It’s more about dropping more of the top line to the bottom line. Along with the fake aristo disdain for wage earners that seems to be a requirement for corporate managers.

          1. Dave

            That 35% tariff sure equals a lot of profits lost on cars made in Mexico. Therefore, they will be made in America. Due to the competitive nature of auto sales, the lack of interest in teenagers in buying cars, I think Detroit will not raise prices to match the labor cost difference. Also, there will be even less demand for U.S. made cars as most of the Mexican factories will possibly remain open for the Latin American market, which means even fewer exports of American made cars. A scarcity of markets means lower prices.

      2. RBHoughton

        The addiction to foreign trade is for the money in it. The importer doubles his money, the wholesaler doubles his money, the distributor doubles his money and the retailer gets what he can. The Chinese manufacturer is satisfied but most of the street cost goes to the intermediaries.

        The Chinese governments interest for many years was simply receiving the foreign money payments and paying out the exchange in RMB.

    2. Phil

      Notwithstanding your comment about the Clintons:
      Trump hasn’t done a thing for American workers. Indiana taxpayers (American workers) are on the hook for Carrier taking on roughly 700 jobs of the 2000 that Trump said he would “save”. We don’t even know the deep details of that “deal”. If anyone thinks that Carrier signed off on that deal without the permission of Carrier’s parent, United Technologies (a pure defense firm), I have a bridge to sell them. What future “deal” did the American taxpayer (worker) get subjected to when this “deal” was made behind closed doors to a defense contractor whose *only* means of revenue is from the American taxpayer (worker)?

      What about the citizens (workers) of Indiana who are going to carry the financial and social burden of the 1300 Carrier workers that Trump promised (early on in his campaign) whose jobs he would save. The carrier deal, in fact, was virtually the same deal that Pence had put on the table a year ago.

      United Technologies has *three* air conditioning brands; their Mexican lines are still open, and the 700 jobs that Trump said he “saved” are not committed to any kind of permanent status in the USA. Again, the Mexican manufacturing lines remain open, operating, and ready to accept those jobs when Carrier thinks it’s appropriate.

      As for the auto companies? Please. Trump did NOTHING that wasn’t already planned, or that wasn’t already inspired by market forces and in the works.

      FORD on the cancelled Mexican plant:
      http://www.metrotimes.com/news-hits/archives/2017/01/04/we-didnt-cut-a-deal-with-trump-ford-on-canceled-mexican-plant
      “‘To be clear, Ford is still moving its production of small vehicles to Mexico. The Ford Focus will still be produced in Mexico, just at an existing Mexican plant instead of the canceled plant. “[T]he reason we are canceling our plant in Mexico, the main reason, is because we are seeing a decline in demand for small vehicles here in North America..”

      CHRYSLER-FIAT
      https://www.rawstory.com/2017/01/fiat-chrysler-smacks-down-trumps-boasts-president-elect-not-involved-in-companys-job-creation/
      “Jodi Tinson, a spokeswoman for FCA told ThinkProgress, “This plan was in the works back in 2015. This announcement…was just final confirmation.” Tinson also confirmed that neither politics nor the presidential election was at all related to the company’s expansion”

      Trump is a fraud and an overt liar; he’s a pure clinical narcissist who doesn’t work for anyone but his frail ego – ever seeking out his next source of narcissistic supply – a supply he has been able to control from his early days from the happy accident of inherited wealth – going on from there to use his inheritance to enrich himself at the expense of others.

      Yes, American workers have been screwed over, but they have been screwed over mostly by Plutocrats who have owned both parties for decades. Ironically (in the face of all the anti-immigration talk), the vast majority of those Plutocrats have been *white, male* CEOs.

      Anyone looking at Trump’s early appointments and Cabinet nominees – not to mentioned his unhinged comments and tweets – who is not scared stiff by the presence of this goon in the White House – is suffering from a serious case of confirmation bias.

    3. different clue

      Why would you be willing to pay twice as much for Chinese junk? Especially if it were still junk? If I were going to pay twice as much for something, I would rather that something be American not-junk rather than Chinese junk.

      1. bmiller

        Given the reality that the most modern manufacturing capacity in the world is Chinese when it comes to consumer durables, it is racist to assume that “American” products are automatically better. The disinvestment in American manufacturing would take decades to replace.

        1. tegnost

          last night listening to some folks opine re starbucks as a ubiquitous bad, the defense was they generally treat their employees ok, better than mcdonalds certainly, homeless people are given a little space before they get cleared out after a few hours if they are civil, which seemed to make the “striving to be good consumers, attempting to be socially responsible” lean towards well maybe they guessed it might be ok to go there. They all have i phones, however, and I didn’t say it as I like my job, but was thinking “how many suicide nets does starbucks have in their global domain?” To call that racist makes me wonder about your comment, maybe if you had said is it racist, but no… further, and in direct relation to that, china got manufacturing because suicide nets are a solution for apple that would not go over well around here. Maybe that’s why they produce there, and not because the chinese are better at manufacturing?

        2. different clue

          You can only play the race card but so many times before you wear it out. And it is pretty thin.

          I assume that American-made Science Diet dog food won’t have poison in it the way I have to assume Chinese dog food may have. I assume that American-made sheet rock won’t offgas sulfur dioxide gas which turns into sulfuric acid in moist air ( as in Florida), and destroys household appliances in a year or less. The way some Chinese high-sulfur sheetrock did at least once in Florida. I assume an American-made Oakland-Bay-Bridge at twice the price would not now be already having the decay and bad-build problems which the Cheap China Crap Construction bridge is already having.

          Shall I go on?

          You sound like a Free Trade Treason hasbarist for China. In fact, I think you are.

          You still want to call me racist? Well . . . kiss me, I’m deplorable.

  3. a different chris

    >Trump’s plan to enter into bi-lateral trade deals (after supposedly tearing up extant pacts)

    Well we never know what the frell he is actually going to do, sure can’t judge by what he says. If he did start with and modifies “extant pacts”, that would actually make a lot of sense and maybe even go decently well at a more-than-glacial speed.

    Of course – I hate when people speculate, and especially when they speculate that somebody is going to do literally the opposite of what they said they were going to do, yet here I am doing exactly that. My only excuse is that his personality is not to get that deep into anything, so it just seems more likely that he would simply focus on whatever specific aspect of a given treatry is problematical, wack a bit at that (for better or worse), and move on.

    Dude is going to make us all crazy.

  4. Ignacio

    Bi-lateral trade deals can focus on relatively narrow trade areas and in this case those needn’t so much time to get negotiated and passed. I don’t know if that is Trump’s strategy.

  5. susan the other

    This is a great summary of the recent fate of the TPP and the reasons for it. It may not be dead yet – even though it has been unceremoniously tossed on the cart of the dead (monty python). But the thinking behind it is terminal. Why no one ever discussed the military aspect of the TPP can be attributed to its strict secrecy. It was obvious to lots of people that the TPP was NATO for the Pacific and China was the target, and equally obvious that it was bad policy from any perspective. Bilateral trade will survive this debacle and world trade will continue – but trade will not be such a military tool, hopefully. It will be a good thing.

    1. different clue

      It was not obvious to me. It is still not obvious to me. “China” was the excuse advanced for TPP late in the day when the Tradesters discovered that popular sentiment was turning against the Corporate Globalonial Plantationist purpose of the TPP, and hence against the TPP itself.

      1. Fiver

        First, she is much closer to correct than you re the purpose of TPP. Secondly, why would you argue that the ‘Tradesters’ had to resort to ‘China’ in order to attempt to sell their putrid deal if ‘China’ was not viewed by said ‘Tradesters’ as a word loaded with a host of negative associations, most of which are based on typical US foreign policy jingoistic nonsense rooted in what is certainly a classic case of US/Western supremacist nonsense, if not the more obvious, overt racism now making a rather spectacular comeback?

        1. different clue

          Since so much effort was spent writing corporate privileges and immunities into the TPP,, it seems reasonable to me to think that these privileges and immunities were the point of the
          TPP.

          Since they didn’t mention “China” until the last few months of the mass mind-molding effort, that says to me that “China” was just something they dragged out of the back drawer to try selling the TPP when nothing else would sell it. You have made my own case for me by noting all the negative connotations around the word “China”. These invoked-by-“China” negative connotations were supposed to stampede the public herd into supporting TPP for National Greatness Security reasons.

          So I remain more impressed with my own analysis than with other peoples’ belief that “exclude China” was ever the point of the excercise.

  6. John k

    Lesson learned is to avoid electing corrupt candidates that call it a gold standard… right away you know who is receiving, and who is paying, the gold.
    And then there are sitting elected officials pushing the crap with all their might, anticipating their gold shares maturing as soon as they leave office…

  7. B1whois

    Trade was a major issue in swing states like Ohio, Michigan and Pennsylvania, where concerned voters overwhelmingly opted for Trump.

    Bravo! “Concerned voters” is a much better descriptor than “deplorables”, “working class whites” or even, in this case, “working class voters” as there were also sovereignty issues.

    1. bmiller

      The statistics show it was more the middle class and upper middle classes, especially evangelicals. Sexism played a big role.

      1. Outis Philalithopoulos

        The wording of your comment is rather ambiguous – are you stating that “statistics show” that “sexism played a big role” in the swing states? Where do you situate yourself relative to Lambert’s discussion of the subject?

      2. different clue

        The sexism card is wearing about as thin as the racism card is wearing. Clinton lost support in the Midwest when she revealed herself to be a Free Trade Traitor against America by stating that she would put her husband, NAFTA Bill, in charge of the economic recovery when she got elected.
        That expression of support for anti-American Trade Treason guaranteed her loss right there.

        Statistics show . . . that figures lie when liars figure.

  8. Oregoncharles

    ” trade agreements take a long time to negotiate, typically because they also include services, and those take way longer to sort out than the physical goods side.”
    My first reaction: good. Services shouldn’t be in trade pacts. And if they take a long time to get done, all the better. The fetish for “trade pacts” is mostly destructive.

    Fundamentally: they’re superfluous. People have always traded, mostly without “pacts.” When it comes to “absolute advantage,” literally trading apples for oranges, everybody really does benefit and barriers melt away. Under modern conditions. “comparative advantage” is a falsehood, as a close look at the conditions Ricardo set for it will show. It requires that labor and capital don’t move at all freely between countries – true in his day, but certainly not in ours. Bizarrely, his theory is being used, dishonestly, to promote the destructive free movement of capital, and that’s what “services” mostly means.

    The point that trade agreements take a long time is probably true, as well as not an objection; but it isn’t an argument for multilateral agreements like the TPP; it’s an argument for the WTO, if it had been done right. The plan was to set up an overarching, worldwide structure for trade. But it should have been done under the UN, and it shouldn’t include attacks on sovereignty like the tribunals. The real reason for other agreements is that the requirement for consensus in the WTO put up a dead end sign: thus far, and no farther. So the “Washington Consensus” tried for work arounds. But the consensus model makes sense, and the rules should be universal.

    The real gist of Ricardo is that trade is NOT an unmitigated good. It easily becomes more or less subtle forms of imperialism. Furthermore, low trade barriers make sense. Diversity depends on barriers. They encourage a modicum of self-reliance and provide firewalls so that a financial collapse in one country doesn’t automatically go world-wide. We probably had it right in the 50s and 60s, when the economy was far healthier. Granted, there were still a lot of actual colonies then, so it’s hard to tell how that translates to modern conditions.

    I don’t think I’m saying anything that isn’t very familiar here. We should beware of capitalist ideologies.

    1. different clue

      The fetish for Multilaterialism is also destructive. Multilateralism is just “french” for Corporate Globalonial Plantationist trade pacts designed to exterminate sovereignty for dozens of countries at a time.

  9. Oregoncharles

    ” Our colleagues’ more realistic macroeconomic modelling suggested that almost 800,000 jobs would be lost over a decade after implementation, with almost half a million from the US alone. There would also be downward pressure on wages, in turn exacerbating inequalities at the national level.”

    Yes, that’s what these “trade agreements” are FOR. You don’t think the PTB take bullshit economics seriously, do you?

  10. ChrisPacific

    As an aside, I never particularly liked the sovereignty argument against TPP (which I note is omitted from this article) because I felt it painted with an overly broad brush. More specifically, I would argue that it can sometimes be a good thing if nation-states collectively agree to be bound by rules that supersede national legislation. The Geneva Convention is one example.

    TPP would have been bad not because it compromised national sovereignty, but because of the reasons for which it did so. Overriding national legislation to protect human rights is one thing. Overriding it to grant multinational corporations more power over workers, consumers and governments is quite another.

    1. Oregoncharles

      In this case, “sovereignty” means the power to regulate commerce. Insofar as the signatories are democracy, it also means democracy – the ability to carry out the decisions of representative bodies.

  11. RBHoughton

    The Pacific Rim countries might approve “needless suffering and death” if it keeps them in the west’s good books.

    Countries without an internationally traded currency will not willingly sign up for specious ‘trade in money’ sections. Galbraith the Younger wrote a famous paper on the subject that clearly established there is no such thing as a trade in money. Every way I look at it, its a rip-off, facilitated by a useful idiot in the country’s central bank.

    These agreements, whether global or bilateral, are an invitation to central bankers to become traitors to their own country; an attempt to take over a nation without firing a shot, a blast from a future that permits only trade blocks and no countries.

    I am convinced what the world really wants is a debate on the shape of world government. I do not agree that the chap with the most printed money calls the shots. We are better than that.

  12. Minnie Mouse

    ISDS is nothing more than a scheme to enable direct foreign attacks on the legislative process itself – even more direct and invasive than influencing elections by hacking, propaganda or whatever. Imagine if Vladimir Putin were to accomplish a legislative objective in the U.S. simply by launching an ISDS extortion suit via a Russian state owned enterprise and a willing ISDS tribunal outside the U.S. court system and not at all accountable to U.S. interests. What would the pro TPP corporate Dems have to say then?

    1. different clue

      Here’s what they’d say.

      ” Where’s our money? We want our share of the Big Tubmans!”

    2. Craig Welch

      How would such a scenario achieve a ‘legislative objective’? How would Putin establish a ‘willing ISDS tribunal’? Why should a tribunal be accountable to US interests? The entire point is that it is outside domestic jurisdiction so that it can be neutral.

      1. different clue

        An ISDS Korporate Kangaroo Kourt would be outside domestic jurisdiction so that it can be loftily tyrannical and unaccountable. It would not be neutral. It would be biased in favor of the investing classes and their corporate cover shells. A Russian state bussiness would sue under ISDS for the same reason that any other bussiness would sue. To extort money and to extort permission to sack, pillage, loot and pollute in the targeted country.

        1. Craig Welch

          On what basis do you assert that an ISDS tribunal is biassed in favour of ‘investing classes’? Governments win more disputes than do investors.

      2. Minnie Mouse

        An ISDS tribunal is accountable to NOBODY”s interests and no nation’s constitution, and the issues exposed to attack are open ended and arbitrary.

        1. Craig Welch

          Why would an ISDS tribunal be accountable to some nation’s constitution? Disputes are judged in accordance with a generally accepted principles on International Law.

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