Trump and Sanders Are Right: Obama’s Trade Deal Is a Dud

Trump and Sanders Are Right: Obama’s Trade Deal Is a Dud


To the extent that Donald Trump has any definable public policy positions, the main one is that middle-class Americans have been battered by trade policies written to favor other countries at our expense. Bernie Sanders doesn’t put it quite the same way, but he attacks trade deals for benefiting corporate profits over American workers. Even Hillary Clinton moved away from supporting the Obama Administration’s long-sought Trans-Pacific Partnership (TPP) trade agreement.

What unites every remaining presidential candidate against the dominant consensus on trade for decades is a belief that the benefits don’t outweigh the costs — that U.S. workers are hurt by modern trade deals more than they are helped, and that whatever comes in the form of lower prices on goods doesn’t do enough to offset that.

Well, now we have substantive proof of that, from an independent body that is typically inclined to support the consensus on trade agreements. A government-mandated study into the effect of the TPP finds that it wouldn’t actually move the needle on the economy very much at all, though it would displace manufacturing workers, facilitating that sector’s race to the bottom on labor costs.

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The study is actually required by the trade agreement approval process. Under trade promotion authority, also known as “fast-track,” which allows the president to negotiate trade agreements and bring them back to Congress for approval without filibusters or the opportunity for amendment, the U.S. International Trade Commission (ITC) must write a report spelling out the likely economic outcome of the proposed deal. The ITC report on TPP came out on Wednesday. 

The panel is balanced, with three Democrats and three Republicans. Many experts complain that the ITC methodology systematically undercounts the impact of trade deals, because it assumes that every worker displaced by trade will find a new job, along with no real change in the trade deficit. It also doesn’t account for currency manipulation, the greatest driver of trade deficits. 

ITC has been wildly wrong before. It predicted a trade surplus from the North American Free Trade Agreement (NAFTA) when we actually got a deficit, and it predicted far smaller deficits from China’s entry into the World Trade Organization. 

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But even with that caveat, the top-line findings are striking for how negligible they are. The ITC estimates that in 2032, or fifteen years after the agreement went into effect, real gross domestic product would only be 0.15 percent higher than if we did nothing at all. In addition, employment would be, according to the estimate, 0.07 percent higher.

I’m not sure we can talk with specificity about the impact of a thousand-page agreement 15 years into the future. Some studies have shown positive impact to the economy from the TPP, some negative. But if the ITC conducted the most careful, dispassionate analysis of how a post-TPP world looks, then they’re telling us that it’s barely a blip on the radar screen. As Public Citizen wrote in a statement, “The ITC projects that the United States would be as wealthy on January 1, 2032 with TPP as it would be on February 15, 2032 without the TPP.”

This is diametrically opposed to how the administration has been selling the pact. Earlier this month, President Obama wrote in The Washington Post, “once the TPP is in place, American businesses will export more of what they make. And that means supporting more higher-paying jobs.”

Actually, while the ITC report finds that, in 2032, U.S. exports would increase by $27.2 billion, that’s completely nullified by the fact that imports would increase by $48.9 billion. So TPP’s implementation would widen our overall trade deficit. 

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As for higher-paying jobs, real income increases by a whopping 0.23 percent in 15 years, according to the report. And the biggest gainers would be in the agriculture and food sector, staffed at the ground level by mostly low-wage workers. “Output in manufacturing, natural resources and energy,” writes the ITC, “would be $10.8 billion (0.1 percent) lower with the TPP Agreement.” The result is similarly negligible, but for these higher-wage sectors, it’s negative. In fact, 16 of the 25 economic sectors studied in the report see worse outcomes after TPP implementation.

The Obama administration countered this study by saying that it doesn’t take into account all the great benefits of TPP. “What cannot be quantified in this study or any other is the cost to American leadership if we fail to pass TPP and allow China to carve up the Asia-Pacific through their own trade agreement,” said Michael Froman, the U.S. trade representative.

Warning of diminished U.S. leadership is always the last refuge of a scoundrel. But in this case, it’s particularly laughable. According to the ITC, U.S. exports would grow faster than imports among TPP members, but that would get canceled out because imports would grow faster than exports with non-members. And our biggest non-TPP trading partner is China. So guess who ultimately benefits?

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While the ITC finds that the U.S. would receive fewer imports from China in textiles and footwear, as that business shifts to lower-cost countries like Vietnam and Malaysia, the report also predicts a battering for the auto parts sector. And weak rules of origin mean that up to 55 percent of a car could be made in China under the TPP agreement (and more textiles than is currently suspected as well). China will do fine whether there’s a TPP or not.

Meanwhile, what is mostly left out of the ITC analysis, though you’d never hear it from the administration, is how corporate profits are guaranteed through stricter intellectual property laws, “harmonized” (that should read “loosened”) regulations and the ability to sue countries over lost profits under the Investor-State Dispute Settlement (ISDS) provisions. The real impetus for TPP is that corporations want to get insurance on their outsourcing operations. What it does for our economy is of more minimal significance.

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Ultimately, the economic benefits of trade rely on much more important considerations — primarily exchange rates and whether countries intervene to devalue their currency, making their exports more attractive — than these corporate-written agreements. Deals like TPP simply don’t provide the economic juice that boosters claim. And the harms to sectors that have already been hit for decades from the negative consequences of globalization are usually not mitigated.

So it’s no wonder that, however officials inside Washington like to tout trade agreements, anyone running to capture votes from people outside Washington — on the left or the right — oppose them. We need a new trade model that lifts up workers everywhere rather than a set of rules that boosts corporate profits.