What the TPP Does Helps America. What it Doesn’t Helps China.

What the TPP Does Helps America. What it Doesn’t Helps China.

"The agreement leaves much to be desired, but it could have been worse."


Pro, con or undecided, all can agree that the Trans-Pacific Partnership (TPP) is a bear. Its size, complexity and the extreme likelihood that it will yield a host of unintended consequences make any singular assessment simply impossible. The agreement neglects enough to tempt an outright rejection. At the same time, the geopolitical advantages make it hard to dismiss—and it does do something to support the liberal international economic order on which America’s prosperity rests, its global influence depends, and with which its fundamental national interest has long identified. Here are some of the good, the bad and the muddled.

The geopolitical picture is clearest. Linking Japan, Brunei, Malaysia, Singapore, Vietnam, Australia and New Zealand in an extensive trade agreement with the Unites States along with Canada, Mexico, Chile and Peru, cannot help but leverage this country's influence in the region and accordingly diminish China's. It may do nothing to address China's very real military challenges in the Pacific, but the economic edge is no small thing. In this way it does much to support the administration's "pivot" toward Asia. Indeed, its promise in this regard has become evident in just the last few weeks as India, South Korea and Taiwan have expressed interest in the agreement. Even Beijing, which seemed largely uninterested in the effort as it was negotiated over these many years, has hinted that it, too, might have an interest in joining or arranging some kind of association.


The agreement promises a welcome way to discipline Chinese practice. It is hardly news that Beijing frequently violates international norms in trade, in finance and in its currency policies. It manipulates the value of its yuan to gain an artificial advantage for its exports. It regularly violates copyright and patent protections and uses trade to reinforce its otherwise flagrant military bullying in the western Pacific, most prominently with the Philippines and Vietnam but with other countries as well. And it does so despite its membership in the World Trade Organization (WTO). The TPP, of course, will have no binding influence on China, but by enshrining rules on trade, environment, labor practice and intellectual property among many of China's trading partners, it will tend to impose a constraint on Beijing, an added inducement to stay in line with international norms, or at least not to violate them quite so flagrantly as the country has in the past. Were the agreement to have enough success to impel Beijing to join, presumably in the hopes of countering American influence, that disciplinary effect would only gain strength.

Contrary to more tendacious commentary, the treaty manages to secure these advantages without compromising U.S. sovereignty. Complaints along these lines note the TPP's demand that the United State adjudicate disputes in an international setting instead of within its own judicial institutions and that the treaty, if signed, would force this country to alter its laws according to the agreement's text. These points, though true, are no different from other international agreements, much less treaties. All make demands of this kind on its signatories, the WTO and its predecessor the General Agreement on Tariffs and Trade (GATT), NATO, the UN, NAFTA and the many bilateral agreements the United States has with any number of nations. The sovereignty test is not, as these critics seem to contend, that the nation has to abide by its agreements, but rather that the United States can withdraw any time it wants. It is no more a threat to the country's sovereignty than a person's decision to sign an employment contract is a threat to his or her basic individual freedom.

If the TPP has things to recommend it from a geopolitical standpoint, it fails on the economic side in critical ways. One is its exclusiveness. It may promote a liberal economic order among the signatories, but by its nature it resists one among others. If U.S. interests really depend on a global liberal economic order, then this agreement does as much to thwart that agenda as to advance it. At one time, U.S. policy avoided such contradictions. In the 1950s, 60s and 70s, the United States, realizing that its political-economic needs were best served by free trade everywhere, eschewed exclusive agreements and consistently sought a reduction of trade barriers across all nations. Through the GATT, which the United States created for this purpose, it succeeded, too. Those years saw widespread tariff cutting and some of the greatest gains in both American and global growth. That older, inclusive approach and its success prompted the great international economist, Charles Kindleberger, to describe the United States as "the altruistic hegemon." The departure from this policy began in the 1990s with the exclusive NAFTA treaty. The TPP extends and exaggerates the trend toward treaties that liberalize in one sense but seek a partisan advantage in another, muddling U.S. interests and adding an element of hypocrisy to Washington's claims into the bargain.

The other great disappointment is the TPP's silence on the subject of currency manipulation. Probably the single largest distortion in world trade today comes less from overt trade restraint than from some countries' efforts of to gain an unfair pricing advantage for their exports by artificially depressing the foreign exchange value of their respective currencies. The United States accused Japan of pursuing such policies in the 1980s. More recently, many countries have accused China of it. Not too long ago, a group of emerging economies accused the United States of currency manipulation, pointing to its policy of quantitative easing as a way to flood the world with dollars and so effectively depress the currency's foreign exchange value. The International Monetary Fund (IMF) and the WTO, both pillars of the liberal world economic order and products of early U.S. efforts to promote it, pressed TPP negotiators to rid the world of such distortions by writing strictures against currency manipulation into the agreement. No doubt, these international bodies hoped that such rules might influence nations, like China, even though they stand outside the agreement. The lack of any such effort in the TPP weakens its ability to promote the liberal world economic order that at least rhetorically forms a part of its purpose.

This is far from the whole picture. On a positive note, the agreement does much to further U.S. agricultural exports by dismantling long-standing restraints on food imports among the signatories, Japan most especially. Perhaps with it, the American farmer will depend a little less on the American taxpayer. The TPP also manages to impose labor and environmental rules on other nations. Though long sought by labor and environment advocates, such measures, in the end, will do little to stop the flight of low-skilled jobs from this country. The agreement leaves much to be desired, but it could have been worse.

Mr. Ezrati, a contributing editor to The National Interest, senior economist for Lord, Abbett & Co., and an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY). His most recent book, Thirty Tomorrows, describing the challenge of aging demographics and how the world can cope, was recently released by Thomas Dunne Books of Saint Martin’s Press.

Image: Flickr/Roger W