Features

March/ April 2013 A Tale of Two Trade Deals

Never mind Asia, time to pivot to Europe.

By Clyde Prestowitz

While Washington is consumed by political furor over how to get the federal budget deficit under control, strangely few people are talking about its troublesome twin sister. Unlike the budget deficit, the half-trillion-dollar U.S. trade deficit does nothing to stimulate the economy even in the short term. Rather, it is sucking jobs out of the country year in and year out while also raising doubts about America’s ability to maintain its global security commitments. Taking sensible measures to reduce our chronic imbalance of trade would require neither austerity nor tax increases, and is the key both to creating jobs and to restoring confidence in America.

So what, you might ask, is the administration’s policy on trade? Right now its primary focus is on a deal known as the Trans-Pacific Partnership, or TPP, which President Obama wants finished up by October. If concluded according to plan, the TPP will include the United States, Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, and Vietnam, with the possibility that Japan and Korea might also join. The treaty would also be open for other countries to join if they could meet the required standards.

Beyond this, as Obama announced in his State of the Union address, the White House is looking for a deal gazing in the opposite direction. Known as the Transatlantic Free Trade Agreement (TAFTA), it would tie the United States and the European Union into the world’s largest trading block.

As with most trade deals, both the TPP and TAFTA have geopolitical as well as economic significance. Indeed, one reason the administration is placing strong priority on the TPP is because it sees the deal as an important part of its larger foreign-policy “pivot to Asia.” With the rise of China and recent U.S. emphasis on Iraq, Afghanistan, and the Middle East, some Southeast Asian and East Asian countries have been looking for assurances that the U.S. will remain engaged in the region and provide a countervailing power. So along with stationing 2,500 Marines and increasing the U.S. naval presence in Australia, opening a drone base in the Cocos Islands, increasing naval visits to Singapore and other Asian ports, and raising the U.S. naval presence in the western Pacific to 60 percent of all U.S. ships, the administration is seeking special economic ties with the nations noted above—which, of course, do not include China.

A potential trade deal with Europe also has economic and geopolitical implications, but it has not yet generated the same level of expectation, commentary, and lobbying. This is partly because it is not as far advanced as the TPP, but it is also because few imagine that Europe will be a source of either major opportunities or major threats. Why place bets on an aging, stagnant Europe, goes the conventional thinking, when this is likely to be the century of Asia?

Yet the geopolitical case for the TPP is not nearly so strong as the administration argues, and the agreement is certainly not worth the cost the U.S. is likely to have to pay. Meanwhile, the economic case for forging closer trading ties with Europe is comparatively much stronger. It’s time to look deeper at how these two trade deals fit into America’s grand strategy.

In early 2011, Deputy National Security Advisor for International Economic Affairs Mike Froman invited me and a few other trade experts to the White House to request suggestions and support for the TPP.

Froman made two basic arguments. The first was geopolitical: the TPP, Froman explained, was the administration’s way of demonstrating to our Asian friends and allies that we are back and committed to them. The second was economic: the deal would further open some important markets to American business, he argued, and, most importantly, would serve as a template for negotiating much broader and purer global free trade deals in the future.

To understand the administration’s reasoning, it is necessary to have a little background. In 2001, the World Trade Organization (WTO), the 158-nation body that attempts to govern global trade, launched the so-called Doha Round (after Qatar’s capital city, which hosted the launch meeting). The purpose of these negotiations was to achieve a dramatic increase in global trade liberalization. By 2008, however, the talks had gone nowhere and American frustration was at the boiling level.

In response, the Bush administration developed a theory of competing free trade agreements, or FTAs. The idea was that by concluding a series of special bilateral and regional trade deals, the U.S. would eventually force reluctant countries to sign on to Doha for fear of being frozen out of preferred access to key markets. While such FTAs were permissible under WTO rules, they were anathema to free trade economists because they inevitably distort trade and welfare by granting preferential treatment to favored partners.

As a test of the theory, the Bush White House announced in the fall of 2008 that it was joining an existing, largely ignored regional trade agreement among Singapore, Brunei, New Zealand, and Chile. After this, however, not much happened until the Obama administration committed to its “pivot to Asia.” That put crafting a much larger “Trans-Pacific” deal on Washington’s front burner, as Forman explained.

This reasoning struck me at the time, and still strikes me, as dubious at best. Let’s start with the geopolitical calculation.

There is no doubt that the growth of China’s power does unnerve other Asian nations. A Singaporean minister for foreign affairs expressed the concern succinctly to me over dinner one night. “As an ethnic Chinese myself,” the minister said, “I know that China views the world hierarchically—with a particular position, either up or down but not equal, for each country. Furthermore, I know the place the Chinese are likely to have for Singapore, and I don’t want to be in it in a Chinese-dominated world. So we need America to prevent Chinese domination.”

Yet if the rise of China makes Singapore and other Asian nations feel insecure, it’s hard to see how the TPP should make them feel better. It won’t halt the rise of China nor the relative decline of the U.S. And in any case, the United States has hardly abandoned Asia. The Pentagon maintains 100,000 troops in East Asia and the Pacific and keeps the Seventh Fleet patrolling the western Pacific as it has for nearly seventy years. We have security treaties with Japan, Korea, the Philippines, and Australia and quasi-security arrangements with Singapore.

Clyde Prestowitz is the founder and president of the Economic Strategy Institute. He formerly served as counselor to the secretary of commerce in the Reagan administration, as vice chairman of President Bill Clintonís Commission on Trade and Investment in the Asia-Pacific Region, and on the Advisory Board of the ExIm Bank. His most recent book is The Betrayal of American Prosperity.

Comments

  • Jim Eckland on April 10, 2013 10:31 PM:

    These two deals will only hurt America's economy and jobs. These "Partnerships" are more about "Regional Government" than trade and should be avoided !!

  • clarence swinney on April 30, 2013 5:05 PM:

    TAX CUT FOR 2%-----
    COMPROMISE TO GET IT FOR MIDDLE CLASS BUT BUT TELL US WHAT IT MEANS

    A typical Republican contribution to Wall Street Ultra Rich
    Once known as CCP (country club party) now known as WSA party (wall street of america)

    2% get 70 Billion per year from the tax cut
    2%--get 30% of our Total Income
    2%--took 75% of total income gain from 2001-2007
    2% wealth--own about 50% of total financial wealth
    2% are among the Forbes richest 400.
    2% are among Fortune highest 400 incomes
    2% pay 17% in income taxes
    2% own major corporations that pay 16% income taxes
    2% that 1980-2009 got 281% increase in Income while middle 20% got 25% or less than inflation for a net loss. 3 million investors/gamblers versus 120 million workers

    What did we get from Bush 1700B Tax Cuts from which 2.7% got four times as much as bottom 80%.
    2% that in 8 under Bush sent 2,300,000 jobs to just China.
    2% that in 8 under Bush created 31,000 net new jobs or worst since Hoover.

    Mr. President.. STAND TALL BE BRAVE DO NOT REWARD GREEDY ROBBER BARONS
    Tell the people the Republicans are the PARTY OF WALL STREET with a goal of eliminating the MIDDLE CLASS. Since 1980 their policies have made America number ONE in major nations in INEQUALITY of Income-Wealth. Declining Ame