Trump Victory Kayoes TPP

Jerri-Lynn here: In this short post, the Institute for New Economic Thinking’s (INET) Jack Gao reports on some implications of the White House’s concession that the election of Donald Trump has kayoed the Trans Pacific Partnership (TPP) agreement. Although Hillary Clinton also claimed to have reversed her initial support for the TPP, there was widespread suspicion that her public position wasn’t her private one, and that the agreement would have been resurrected in some form if she’d been elected.

I have some reservations about this post.  The most serious is that Gao errs by accepting the framing of TPP as a trade liberalization agreement by its proponents.  As economist Dean Baker has written:

The TPP is not about free trade. It does little to reduce tariffs and quotas for the simple reason that these barriers are already very low. In fact, the United States already has trade deals with six of the other eleven countries in the TPP. This is why the non-partisan United States International Trade Commission (ITC) estimated that when the full gains from the TPP are realized in 2032, they will come to just 0.23 percent of GDP. This is a bit more than a normal month’s growth.

In fact, the TPP goes far in the opposite direction, increasing protectionism in the form of stronger and longer patent and copyright protection. These forms of protection for prescription drugs, software, and other products, often raise the price by a factor of a hundred or more above the free market price. This makes them equivalent to tariffs of several thousand percent.

The bottom line, according to Baker:

The real story here is that the TPP is a deal about redistributing more income upward. It’s imposing more competition on those at the middle and the bottom while maintaining and increasing forms of protectionism that benefits those at the top. When reporters call the TPP a “free trade” deal, they are acting as advocates, not reporters. The TPP is a protectionist pact for those at the top who are worried that free trade will undermine their income — like it did for those at the middle and bottom.

Gaius Publus has expanded this argument further in his post entitled, Gaius Publius: TPP Is a Monopoly Protection Scheme, the Exact Opposite of a “Free Trade” Deal. I encourage interested readers to read both Gaius’s post and Baker’s post in full.

Further, Gao notes “economists differ in their assessments of TPP’s likely impact on the U.S. economy.” That’s putting it mildly. The lone study he cites claiming that the TPP would increase GDP, by a mere 0.5% by 2030, comes from the Peterson Institute for International Economics– not exactly what I would call a solid or unbiased source. Other sources are decidedly more sceptical about the TPP’s purported benefits, particularly when the weak enforcement record of labor, environmental, and human rights standards is considered.

Gao points out that concerns about inequality and transparency have made so-called trade agreements “politically toxic”.  Trump’s election demonstrates this is certainly the case. But I believe his analysis suffers from his basic failure to jettison the trade liberalization label when discussing this deal (and by implication, other similar agreements, past and pending).

By Jack Gao, who is a Program Economist at the Institute for New Economic Thinking (INET), with interests in international economics and finance, energy policy, economic development, and the Chinese economy. He previously worked in financial product and data departments in Bloomberg Singapore, and reported on Asian financial markets in Bloomberg News from Shanghai. Jack holds a MPA in International Development from Harvard Kennedy School, and a B.S. in Economics from Singapore Management University. Originally published at the Institute for New Economic Thinking Website.

The Council of Economic Advisors warned earlier this month that 5 million U.S. jobs will be lost with the collapse of the Trans-Pacific Partnership trade agreement — a probability now confirmed by the White House, which noted that the TPP won’t pass Congress following the election of Donald Trump as president.

The widespread popular opposition to the mega trade deal, which prompted both presidential candidates promising not to sign it in its present form, make clear that trade policy will no longer be set by economic experts alone.

The CEA brief emphasized that forgoing TPP would jeopardize access to markets that currently account for nearly 45% of U.S. exports, and with it anticipated increases in productivity, investment, and GDP growth. The report included a detailed analysis on the impact of differential access to the Japanese market if TPP doesn’t pass but an alternative deal including China but excluding the U.S. (the Regional Comprehensive Economic Partnership, or RECP) were to come to effect. That eventuality, the CEA concluded, would threaten the market share of the 35 U.S. industries that annually export $5.3 billion goods to Japan.

Traditional arguments for tariff reductions and freer trade invoke economic efficiency and comparative advantage principles. Trade, they maintain, raises domestic welfare to the extent that cheaper imported goods become available, and countries reallocate resources into sectors in which they possess comparative advantage in order to afford the imports. However, with global tariffs substantially lower today than they were a few decades ago, arguments such as those put forward by CEA in defense of the TPP are sounding increasingly mercantilistic: These “exports are good and imports are bad” views stand in stark contradiction with trade liberalization arguments, which promise relatively small gains if traditional manufacturing sectors were opened up further.

To be clear, economists differ in their assessments of TPP’s likely impact on the U.S. economy. While the CEA emphasized the potential risks to U.S. industries and jobs, other models that tried to put a number on the TPP’s impact do not always agree on the direction of the effect on U.S. GDP, let alone its magnitude. Their conclusions depend on assumptions made in the models. A study published by the Peterson Institute for International Economics sees TPP adding 0.5% to the U.S. economy by 2030, raising U.S. wages with no effect on employment levels. In contrast, scholars at Tufts University predict declines in U.S. GDP with TPP. While proponents also list benefits such as improved labor, environmental, and human rights standards that TPP is supposed to bring, the record of enforcement of such standards once trade deals take effect hasn’t been particularly impressive. Job shifts and labor market dislocations as a result of such deals, however, seem all too real to the public.

In a domestic political environment more focused on income inequality and stagnant middle-class earnings, and where no effective institutions provide the transfers necessary to compensate those left behind, trade agreements are no longer a no-brainer for political candidates. They become even more politically toxic when those challenging such deals point out the lack of transparency in the negotiating process, and the fact that those most likely to be negatively affected are deliberately kept away from the table. As Jared Bernstein put it:

“Who would you rather have writing the rules, us or the Chinese?” isn’t the right question. That is, the answer is surely “us,” but who is “us?”

And as Senator Elizabeth Warren argued, when making the negotiation process more transparent risks raising public opposition, it may well be the deal itself — rather than the opposition — that is the problem.

The rapidly changing and increasingly unpredictable domestic political environment has stripped trade liberalization of its conventional-wisdom status in the minds of elected leaders. Economists are certainly realizing that trade deals are no longer up to them to decide on behalf of a citizenry that has felt the impact of some of those agreements, and have — by the votes they cast — shown little regard for the experts who assure them that trade liberalization is in their best interests.

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  1. Clive

    Am a bit pressed for time so can’t do a full translation here, but, bizarrely, according to Japanese press, Japan’s Prime Minister Abe is still harping on about progressing with the TPP.

    Which means he’s either totally delusional (perceived wisdom from western media is that congressional approval for the TPP is political seppuku and not going to be a happening event) or else he (Abe) knows something we don’t. Abe apparently waffled on to the Diet about (loosely translating) the need to put national interests aside “for the greater good”. Hmm. Best of luck with that one, Shinzo.

    My guess is that, if TPP isn’t really anything to do with trade at all but is rather a security pact in disguise, then Abe may have more luck convincing Trump to not bury it entirely. But even that doesn’t fit with Trump’s stated worldview (individual countries need to do a better job of looking after themselves). So I’m totally perplexed by Japan’s media — which tends to not go too far off parroting official thninking. I’ll keep watching.

    1. Kuantan

      The Trade Minister here was on the radio this morning making saying that TPP might still have legs (and talking like that was a good thing). But he did say that the Government was going to focus on the Free Trade Area of the Asia-Pacific rather than focus on TTP.

      I can’t find a direct quote on TTP but it was something like “its for Congress to approve and we’ll see where we go from there”. Here is a general overview of the nauseating (but characteristically, slightly more blunt and honest than you northerners) day of free trade boosting down here:

      1. OpenThePodBayDoorsHAL

        Incredible really that 0bomba would try and launch a Trans *Pacific* Partnership without China in it, the term ύβρις come to mind.
        Maybe Canada and Mexico will launch a North American Trade Partnership but will say America is not invited.

        1. Joe

          “0bomba”, really? Maybe you have serious ideas, but writing like this makes you sound silly and petulant.

    2. Dwight

      I’m wondering how TPP (or TISA) will affect the Japanese health care system and what Japanese opponents of TPP are saying on this issue,

      1. Clive

        Healthcare (along with agriculture) is one of the main red-button issues for the Japanese in respect of the TPP. Abe’s administration has sunk huge political capital into placating politicians, healthcare providers and farmers to keep the TPP on life-support in Japan. If Trump pulls the plug, it’ll be a huge loss of face for Abe personally and Japan by proxy.

        The US will need to tread very carefully and use some adept diplomacy to placate the sections of Japanese officialdom who will be very miffed if the TPP dies a (deserved) death. Which of course the US won’t due to its general uselessness in managing overseas relationships.

  2. EndOfTheWorld

    “..there was widespread suspicion that her public position was not her private one…”—One of the few noteworthy remarks ever made by HRC was when it was found that in one of her private Wall Street speeches she admitted this was often her standard operating procedure. Later she more or less defended the practice.

  3. Foppe

    Is it that the folks at INET don’t use ‘past performance’ as an indicator as to whether to gainfully employ someone, or is it (becoming?) (mostly) just another colony of the Blob, with (a few) exceptions?

        1. craazyman

          The dictionary is wrong. And even if it’s rite, there’s no “e”. it wouuld be Kayos.

          But nobody would be able to understand it. Kayoes sounds like a place you fly to by single engine plane in Alaska where they have hunting and fishing lodges and shoot L.L. Bean catalog photography.

          Also the Oxfford dictionary is made in England. That should raise questions about their command of English since it’s a foreign country and there aren’t many boxers from England.

          kayoes is like putting an ‘e’ at the end of Shoppe. Like “Ye Olde Dictionary Shoppe”

          Simply for Post Credibility, somebody should change it back to KOs.

          1. Jerri-Lynn Scofield Post author

            Please click on the link. I like the OED b/c it provides sample sentences. In this case, it traces the origin of the term to the 1920s. You’re correct that the noun, kayo, has no e. But when used as a verb– kayoes, kayoed– the e is present.

            That the usage is recognized by the OED suggests it’s not just an American thing. (IIRC, the OED does usually distinguish peculiarly US usages– but my memory may be faulty on that point. I’m travelling and thus don’t have my OED to hand and must rely on the link provided– which is not a patch on the hard copy.)

            I don’t like KOs because someone might confuse it w/ Daily KOS– and we wouldn’t want to be responsible for that now, would we? That would be craazy!

              1. Jerri-Lynn Scofield Post author

                Hmmm– didn’t know these Naked Capitalism gigs would generate such interesting questions (I guess I should have paid more attention to that “naked” in the website’s name.)

                Not much of a boxing fan, actually– but a big sports fan. Third generation Yankee fan. If you’d ever met my Grandpa Scofield, who passed at the ripe old age of 95 yrs minus one month– and if he didn’t try to hustle you for quarters at the pool table, which he did successfully ’til the end– he would have summarised the highlights of his life this way: He’d seen Babe Ruth play (many times, and hit many home runs– he would have told you the exact numbers, too), been through the Panama Canal, been on a (cruise) ship that sunk, worked through the Great Depression (never lost a day’s pay); and was married to a wonderful woman who died too soon and whom he’d be buried next to. And he was. But notice the order of his life’s highlights.

                My whole extended family are big sports fans. My father taught me the big cities in the US by associating them with baseball teams (leaving me w/ some very big gaps in my geography), and my normally very proper sister at one time allowed her three very well-behaved then little girls to answer the ‘phone with a chipper “Red Sox suck”– during the past round of Yankee glory days.

                I travel lots now, often in Asia, so don’t get to see much live baseball (and it’s not easy to find in Asia on the telly). I still prefer less violent sports– so, that means, no boxing. No American football, which I’ve never liked. And my sporting tastes have become more global– football (I mean real football, played with the feet, aka in the US as “soccer”, or so I understand), and cricket. It’s taken me a long time to understand even a bit of how that game works. But now, I like to settle in and follow a good test match. Currently, England v. India is on the telly and I’m also following the excellent Guardian live blog as well.

                My preferences: I support England first (first learned about cricket from my English husband). So, let’s go, Captain Cook. Then, I root for India, but not when they play England (but a shout out is in order lauding Virat Kohli– that man can bat! One thing I love about cricket is that the crowd will cheer for either side when something’s particularly well done.) And I always root against Australia in cricket. (Nothing against Oz or Aussies but Aussies would realise that one can’t be an England (India) cricket supporter and not root against Aussie cricket– call it a grudging homage.)

                Best moment watching cricket live: seeing Kumar Sangakkara batting for Sri Lanka at his last appearance on the Colombo cricket pitch in an ODI against England. Everyone in the stadium was willing him to get a century– including this England supporter. Sadly, he came up a bit short.

                Realise I’ve still only answered one of your questions, but think this should suffice!

    1. Katharine

      It’s interesting, to word people anyway, that that now needs to be explained. Half a century ago, when professional boxing was still a fairly big spectator sport and daily newspapers had sports sections that covered it and were seen by millions of people, even someone like me would pick up the word in passing. Now it’s losing its force as a metaphor because it is not as widely recognized, while younger people toss around technical jargon that is perfectly intelligible to them and Greek to me.

      1. David Troutman

        Katharine, even if boxing were as big today as 50 years ago, there is something else going on. Boxing metaphors have always only been understandable to native English speakers, and even then, mainly Americans. There are many people, a significant number, anyway, who read Naked Capitalism who are not Americans and who do not have the cultural background necessary to understand k.o. or kayo. And these people would not have had the cultural ballast necessary for that even 50 years ago.
        I am a writer and translator, and have just returned to the USA after an absence of some 30 years. Even though I am a native American, there are many metaphors in the language today that I do not understand. Most of them refer to American TV shows.
        There is a lot of misunderstanding going on because of this kind of thing. Especially Americans take a lot of things for granted that are totally unknown to the rest of the world. Like, for instance, that everyone in the world would like, most of all, to be American. People, not least in Blobville D.C, seem to assume that, but I can assure eveyone that it is not true. Some would certainly like to be, but there are plenty who would prefer to do without American TV, just to take one example. That includes some Americans :-)

      2. tongorad

        When’s the last time a major boxing match was featured on network TV? When I was a kid boxing matches were regularly broadcast as major sports/cultural events.
        And then closed circuit TV took over.

        My favorite boxing term is “palooka.”

  4. jgordon

    If Trump keeps us friendly with Russia and keeps us out of any more “trade deals” as far as I’m concerned he can spend his next four years on vacation golfing and I’ll enthusiastically support his reflection effort.

      1. jgordon

        Haha you’re right. My “smart” phone’s autocorrect does the weirdest things. But sometimes it’s like serendipity.

  5. oho

    ” Institute for New Economic Thinking ” (est. 2009, co-found George Soros)

    we’re at Peak Think Tank.

    I fully expect a mail solicitation from “The Human Fund” this Christmas season.

    PS, The Kochs are nefarious billionaires meddling w/US politics, but George Soros is an angel when he meddles.

    1. flora

      ah, I wondered where the opening line “5 million lost jobs” came from. Now I know. This post ends on a more realistic note than I expected, given the opening.

      All the MSM narratives about Trump, trade deals, etc were smashed by this election. Too many of the MSM are still harping on the same story lines they used before the election as if nothing has changed.

      1. Dave D'Rave

        That number is what we call “A Total Lie”.

        My numbers are that TPP would increase the US trade deficit by $250 Billion per year,
        which is equal to 1.7% of GDP, or 2.5 Million Americans out of a job.

        That number does not include the Immigration provisions of TPP, which could be
        even more toxic than the H1-B visa program, depending on the exact regulations
        which are adopted.

  6. chuck roast

    “Economists are certainly realizing that trade deals are no longer up to them to decide…” Since when did economists ever decide anything?
    These trade agreements were written by powerful corporate lobbyists, and the great mainstream of flunky pseudo-science economists are simply required to say, “Duh!”
    Outliers like Dean Baker do the actual math so the great unwashed can figure out which cup the pea is really under.
    Thanks for all your work and focus Dean!

    1. Jerri-Lynn Scofield Post author

      Yes, you’ve identified another problem I had with Gao’s piece. But I decided not to discuss that point, as I didn’t want my intro to the piece to be longer than the piece itself. So I focused on what I thought to be its most serious flaws.

      And I should add, I agree with you about Dean.

  7. JEHR

    With a president Trump, there is the possibility that his actions on trade will make TPP a moot point because business will get what it desires without a trade deal. That’s what I suspect.

    1. Centrally Grown

      Yes, I cannot put a lot of faith that someone that lives in such an insulated world (living in a tower no less)
      would be reviewing trade deals that would service someone like me versus a multi national

    2. jrs

      true, very true, but at least he won’t have dragged the whole rest of the world into the mess by dragging them into these trade agreements. That the U.S. is going to keep sucking more and more is probably a given.

  8. Brad

    “In fact, the TPP goes far in the opposite direction, increasing protectionism..”

    “Gaius Publius: TPP Is a Monopoly Protection Scheme, the Exact Opposite of a “Free Trade” Deal.”

    Exactly. I said that at the Geopolitical Economy Research Group kickoff conference in Winnipeg, Canada, Sept. 2015 in a paper presented there, “The Hegemon That Failed”. The argument is simple: The USA has always been “protectionist”, only the modes changes over time to adjust for altered circumstances. It wasn’t just a 19th century thing. This stems from the very character of the new state founded in 1787. That’s why the colonial ruling class of merchants and planters left the British Empire in the first place. (The farmer-settlers had their own motives).

    The US has tolerated “free trade” with select countries only if it benefits that ruling class. Therefore trade is always Amero-centric. It’s basically neo-mercantilism and always has been. And if you cross them in geopolitical economic terms, you’re not only out, you get “protected against”, including sanctions, military buildup, etc. That’s basically what the Cold Wars, old and new, are about, forming a US-centric neo-mercantile cartel of the G7 against the rest.

    The TP-whatevers are but the latest rendition. Their failure without replacement would be a historic reversal for the US.

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