Economics

R.I.P., TPP

It would've been a major advance for fair trade.

Just like that.

Photographer: Ron Sachs/Getty

In one of his first acts in office, President Donald Trump signed a memorandum withdrawing the U.S. from the Trans-Pacific Partnership, a 12-nation trade agreement that was years in the making. Trump says that doing so will help American workers and companies compete more fairly. In reality, his decision will have exactly the opposite effect.

Although TPP is often called a free-trade agreement, it actually would've done little to liberalize American markets, which are already wide open to most countries taking part in the deal. U.S. tariffs on most products from TPP countries range from 1 percent to 3 percent; lowering them further wouldn't have had much effect. The real impact was in setting standards and rules -- and in creating a new model for trade agreements that would've better served American workers and firms.

A primary complaint about trade deals in recent years is that they don't include enough protections for those on the losing end. As the economist David Autor and his co-authors argue in a recent paper, workers displaced by increased overseas trade often have difficulty finding similar-quality work and can expect lower lifetime earnings. In trying to protect such workers from unfair competition, many U.S. politicians have adopted a mantra of "fair trade," and pushed to require that foreign trading partners live up to U.S. labor and legal standards.

What makes the rejection of TPP so counterproductive is that it offered an unprecedented level of such protections.

For one thing, TPP required signatories to adhere to International Labor Organization standards, including freedom of association, prohibitions on forced or child labor, and the right to collectively bargain. Although groups such as Human Rights Watch raised valid questions about how consistently these standards would've been applied, TPP put partner countries on record endorsing labor protections and gave the U.S. a valid legal basis to restrict trade to countries that didn't comply. It was a major advance for workers' rights.

Corporations, too, would've received greater protections. These ranged from intellectual-property safeguards to better governance standards, including anti-corruption efforts. TPP prohibited discriminatory treatment of foreign corporations and arbitrary seizure of property, and required that U.S. firms trading with TPP countries be treated on par with local competitors, just as Trump says he wants.

Many opponents of TPP criticized its adjudication process, which allowed trade disputes to be resolved through independent arbitration, as too business-friendly. But such investor protections are often part of trade agreements, and they don't prevent governments from protecting workers, the environment or any other issue of public concern. For American companies, the process would've provided a transparent way to litigate disputes outside of courts that lacked high-quality legal standards -- and to press those countries to uphold the rule of law.

TPP was precisely the kind of deal that fair-traders and free-traders alike could have gotten behind, in other words. It could have served as a model for future agreements, helping to ensure that open markets work better for everyone involved.

And it had one larger virtue. Anne-Marie Slaughter, previously dean of the Woodrow Wilson School at Princeton University and a State Department appointee, has argued that the U.S. was able to expand its influence across the globe after World War II in large part by extending its domestic institutions and standards overseas. Rejecting TPP will diminish America's ability to improve governance and business standards globally, and to set trade rules that uphold its values, including human rights and the rule of law.

Instead, China is likely to fill the vacuum with its own free-trade deal -- and hence its own values. The Regional Comprehensive Economic Partnership, as China's deal is called, is a mercantilist agreement that lacks the protections for labor, intellectual property and the environment that TPP contained. Many Asian countries will calculate that it's now in their interests. And the result is that China's trade vision will prevail over America's.

Trump talks endlessly about standing up for American workers and companies. But in rejecting TPP, he has explicitly repudiated binding obligations and legal standards that would've done more to protect them than anything else he has suggested. That's the bigger shame of this decision.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Christopher Balding at cbalding@phbs.pku.edu.cn

    To contact the editor responsible for this story:
    Timothy Lavin at tlavin1@bloomberg.net

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