Would Trump rejoin the TPP?

This article first appeared in The Edge Financial Daily, on March 6, 2018.
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DURING the 2016 presidential primaries, I found myself in a San Francisco park talking to a guy who — apart from selling marijuana — was eager to convince people not to support the Trans-Pacific Partnership (TPP), a proposed trade agreement among the US and other mostly advanced economies. For all his sincerity — his backpack was adorned with anti-TPP and Bernie Sanders pins — his rationale was vague, driven by a suspicion of large corporations and a general sense that trade deals gave them unfair advantages.

The encounter demonstrates how emotional an issue the TPP was. Both populist candidates — Sanders and the eventual victor, Donald Trump — thunderously denounced it, and even Hillary Clinton reversed her stance and rejected it. The agreement became a sort of lightning rod for all the trade-related grievances that had been building up in the US for decades. Trump’s campaign channelled memories of the 1980s, when Japanese and German automakers and electronics manufacturers outcompeted US national champions. More recent memories of the China shock — the devastation of US manufacturing jobs by Chinese competition — were also fresh in Americans’ minds. Those of us who argued in favour of the agreement were thin, small voices shouting in the wilderness.

So it is no surprise that one of Trump’s first actions after his inauguration was to withdraw from the TPP. But now, more than a year afterwards, a few voices of reason are starting to suggest that the US reconsider. One is Treasury Secretary Steve Mnuchin, who recently said that Trump is open to rejoining the TPP.

Whatever the reason for the turnaround, it is a welcome sign. Although worries about trade are legitimate, the TPP is a terrible target for that backlash.

First of all, what most hurt US workers was trade with China in the 2000s. The China shock was qualitatively different from other bouts of trade competition. China was so big, competed in so many different industries at once, and had such a huge cost advantage that US workers displaced by Chinese imports were generally unable to find other manufacturing jobs. That sort of devastation is the exception, not the rule. For all the hand-wringing about Japanese competition in the 1980s, total manufacturing employment held up very well until China appeared upon the scene.

Manufacturing jobs declined as a share of the total, but until the 2000s, this was mainly due to a combination of improving automation and stagnation in the demand for manufactured goods, rather than to trade competition.

There is no reason to expect the TPP to produce anything like a replay of the China shock. The countries either in the deal or thinking of joining it — Australia, Brunei, Canada, Chile, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru, the Philippines, Singapore, South Korea, Taiwan, the UK, and Vietnam — are mostly wealthy, with high labour costs and strict environmental standards. Trade with rich countries enhances US economic strength, by creating export markets, improving supply chains and offering US consumers a greater variety of products — all without destructive competition for US workers. It also encourages investment and job creation in the US — Japan, Canada and the UK are already three of the biggest investors in the US.

There are four relatively poor countries in the list — Indonesia, Mexico, the Philippines and Vietnam. But the US already has a free trade agreement with Mexico. Indonesia, the Philippines and Vietnam mostly would not compete with US manufacturers — instead, they would compete with China. Any low-end US manufacturing that could flee the country probably already fled to China in the 2000s. The only way it could come back would be if it were automated — not very helpful for jobs. If these low-end factories moved from China to Indonesia, the Philippines or Vietnam, it would not cause any additional harm to US workers, but it would allow the US to shift its investments toward US allies and away from its main geopolitical rival.

Concern about Chinese geopolitical dominance should loom large when thinking about the TPP. In the absence of US leadership, China will be able to set the rules of global trade. That would mean an increase in Chinese hegemony in the Pacific at US expense, and it would also mean that international trade standards and rules could be reshaped to favour Chinese companies over American ones. This is why Japan, which fears Chinese domination, has been so frantic to preserve the TPP even without the US.

Trump has repeatedly complained that the US never wins anymore. Re-entering the TPP, and taking back the reins of global trade from China, would be a big victory. Staying out of the deal might please some of Trump’s less-informed supporters, but for the nation as a whole it would be a self-inflicted loss. — Bloomberg