By Dean Baker
Originally Published on CEPR
Read the article in its original form on the CEPR site.
It’s hard to resist a good challenge and the Washington Post gave us one this morning in an editorial pushing the Trans-Pacific Partnership (TPP). The editorial criticized TPP opponents and praised President Obama for continuing to push the deal. It tells readers:
“Mr. Obama refused to back down on the merits of the issues, noting that other countries, not the United States, would do most of the market-opening under the TPP and challenging opponents to explain how ‘existing trading rules are better for issues like labor rights and environmental rights than they would be if we got TPP passed.'”
Okay, here’s how we are better off with existing trade rules than the largely unenforceable provisions on labor and environmental standards in the TPP.
1) The TPP creates an extra-judicial process (investor-state dispute settlement [ISDS] tribunals) whereby foreign investors can sue governments for imposing environmental, health and safety, and even labor regulations. Under the TPP, these tribunals are supposed to follow the far-right wing doctrine of compensating for regulatory takings. This means, for example, that if a state or county restricts fracking for environmental reasons, they would have to compensate a foreign company for profits that it lost as a result of not being allowed to frack or the additional expense resulting from the standards imposed. The ISDS tribunals are not bound by precedent, nor are their decisions subject to appeal.
2) The TPP imposes stronger and longer patent and copyright protection. These protectionist measures are likely to do far more to raise barriers to trade (patent and copyright monopolies are interventions in the free market, even if the Washington Post likes them) than the other measures in the TPP do to reduce them. In addition to the enormous economic distortions associated with barriers that are often equivalent to tariffs of 1000 percent or even 10,000 percent (e.g. raising the price of a patented drug to 100 times the generic price), TPP rules may make it more difficult for millions of people to get essential medicines.
3) By increasing fees that our drug companies and entertainment companies get from foreign countries, they will be making the trade deficit worse in manufacturing and other items. This one requires a little economic theory. It is standard practice for economic models, like the one used by the Peterson Institute for International Economics (which the Post often cites), to assume that a trade deal like the TPP does not affect the U.S. balance of trade.
If this is true then if U.S. drug and entertainment companies get more money in licensing fees and royalties, then we must have a larger deficit in everything else. For example, if we have a $50 billion annual trade deficit with Japan, and Pfizer, Disney, and the rest of the gang are able to collect another $20 billion a year from Japan as a result of the TPP, then our trade deficit in everything else must rise by $20 billion in order to keep the overall trade balance unaffected. If we care more about the jobs of manufacturing workers than the profits of Disney and Pfizer, then this is not a good thing.
4) The TPP does nothing to address the problem of currency management. One of the reasons that the United States faces a persistent shortfall in demand (a.k.a. “secular stagnation”) is that it has an annual trade deficit of around $500 billion or roughly 3 percent of GDP. This deficit persists because many countries deliberately prop up the dollar against their currencies.
This is an issue that could have been addressed in the TPP, but President Obama apparently had other priorities. By signing a deal that doesn’t impose rules on currency management we make it less likely that we can see serious action on this issue any time soon. The cost of the trade deficit and the resulting weakness in demand is millions of workers needlessly going unemployed and tens of millions earning lower wages as a result of the weakness of the labor market.
So there are my four responses to the WaPo-Obama TPP challenge. Do I win anything?
I should make one other point on the Post editorial. As usual it fall back on the strategic concerns (the last refuge of the scoundrel) when the economic arguments fail:
“Beyond its economic importance, the TPP is — or would be — a pillar of future U.S. strategic relevance in the vital Asia-Pacific region and a check on Chinese influence..”
If the point of the TPP was to advance U.S. strategic goals in the region, President Obama should not have had Pfizer, Disney, and other major corporations determining the framework for the agreement. He may be able to sell this strategic concerns story to the Washington Post editorial board, but not to serious people.
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