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Latest News - April 2015

April 26, 2015
Mr. Obama's trade fight
Source: THE WASHINGTON POST
By: Editorial Board

THAT WAS some lecture President Obama delivered to free-trade opponents within his own party Thursday night. “When people say this trade deal is bad for working families, they don’t know what they’re talking about,” he said. Democrats who oppose his plannedTrans-Pacific Partnership agreement, and the preparatory bill that would facilitate its swift consideration by Congress, are making unsupported claims akin to Republican charges that Obamacare would create “death panels,” he added.

Amen. With a furious political battle over trade looming on Capitol Hill, it’s high time Mr. Obama personally and aggressively took on the phony arguments that “progressives” are marshalling in a desperate attempt to block trade measures whose merits would withstand honest scrutiny.

Perhaps the most demagogic canard is that the negotiations are a secret process to which “giant corporations have had an enormous amount of access” but not “regular people whose jobs are on the line,” as Sen. Elizabeth Warren (D-Mass.) put it. Since when does the U.S. government negotiate international agreements in public? Anyway, labor unions are on U.S. trade representative Michael Froman’sadvisory committees and receive regular briefings from him. In a representative democracy, Congress stands in for “regular people”; members frequently meet Mr. Froman and his staff. Come to think of it, the president got elected by “regular people,” too — so it’s not exactly clear what would atisfy Ms. Warren and company, short of staging negotiations in Yankee Stadium.

The bipartisan trade-promotion bill guarantees Congress ample time to review the final text of the agreement, contrary to the assertion by former Maryland governor Martin O’Malley (D) that “we’re not allowed to read it before representatives vote on it.” (He later explained that his issue was with the way fast-track authority works.) Unknowable though the bill’s details allegedly may be, the critics have nevertheless concluded, already, that the agreement is “bad,” to use Mr. O’Malley’s word. There’s nothing in it, they say, to prevent U.S. trading partners’ “currency ma­nipu­la­tion” — i.e., using devaluation to promote exports. This is not a purely Democratic gripe; GOP Sen. Rob Portman (Ohio) has been voicing it, too. Of course, relative currency values, which are indeed subject to the vagaries of national policy, may affect the flow of trade even more than the tariffs and other barriers the agreement covers. And, yes, the International Monetary Fund has developed criteria for currency ma­nipu­la­tion — including prolonged current account surpluses and excessive foreign exchange reserve accumulation — that could, in theory, be incorporated into the agreement.

The problem is that the definitions of these terms are subject to endless lawyerly disputation, and they could well be interpreted to rule out legitimate economic measures, including some — such as the Federal Reserve’s recent quantitative easing — that the United States itself might pursue. As Kemal Dervis of the Brookings Institution has argued, pretty much any aspect of macroeconomic policy could be construed to affect a country’s trade balance and, by extension, its exchange rate. It is therefore far better to keep such sensitive matters out of trade deals and leave them to existing, separate, diplomatic processes. To insist otherwise is to countenance a blow-up of the Trans-Pacific Partnership talks, which, of course, is the critics’ agenda.

In any case, the world’s biggest alleged currency manipulator, China, is not a party to the agreement. Japan, accused of manipulating the yen for competitive advantage, is a party, but it should be remembered that Tokyo’s past interventions in the currency markets include its 1985 decision to appreciate the yen at U.S. request. The U.S. dollar is the world’s reserve currency in part because China and Japan hold more than $2 trillion in U.S. securities. Americans enjoy lower interest rates, and the resulting benefits, as a result. The currency story, in short, is not a one-sided tale of ma­nipu­la­tion but a complex narrative whose central theme is interdependence.

But won’t the agreement “kill” U.S. jobs by exposing U.S. workers to new competition from low-wage workers abroad, just as the North American Free Trade Agreement with Mexico purportedly did? No. The United States already has bilateral free-trade agreements with six of the 11 would-be partners — Canada, Mexico, Australia, Singapore, Chile and Peru — and runs trade surpluses with the last four. These half-dozen countries accounted for 74 percent of 2014 U.S. merchandise trade with the area the agreement would cover. By far the largest economy with which the agreement would be a new free trade deal is Japan’s, a high-wage country. And the reform-minded government of Prime Minister Shinzo Abe is offering U.S. exports of both goods and services more access than ever before to Japan’s notoriously closed markets in return for participation in the agreement.

Vietnam is a one-party dictatorship and a very-low-wage economy — and a prospective partner in the agreement (it is the only one of the 12 countries that fits this description; U.S.-Vietnamese trade amounts to a relatively tiny $36 billion per year). This is a legitimate concern, though the Obama administration and the partnership’s bipartisan supporters in Congress at least addressed it by including unprecedented labor and human rights provisions in the trade promotion bill. If it were up to us, Vietnam would not join the partnership until it advances more fundamental political and economic reforms — though we note the irony of the fact that some skeptics about the trade agreement are quite enthusiastic about trading with Cuba.

Still, misgivings about doing more business with Vietnam can’t outweigh the political and strategic benefits of the partnership to the United States and to the Asia-Pacific region. As Mr. Obama has repeatedly pointed out, the alternative to greater U.S.-Asia economic integration is greater Chinese influence in Asia, political as well as economic. And with Chinese influence comes Chinese-style neo-mercantilism, not U.S.-style reciprocal free trade, as the organizing principle of regional economic activity.

Critics of the agreement say they want to rid the world of the Chinese-style trade manipulations that have, in their view, done so much harm to U.S. workers and businesses. How ceding China more influence over a region that accounts for a substantial percentage of the world’s trade would advance that goal is not readily comprehensible, any more than the rest of the weak case against Mr. Obama’s economically and strategically sound trade agenda.

 

 


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