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Why Congress should vote no on the pending Pacific trade deal

The hard truth is that the Trans-Pacific Partnership (TPP) has less to do with freeing trade, creating jobs, or raising wages than with rewriting the rules of the global economy to favor big businesses at the expense of almost everyone else. Its foremost effects would not be lowering trade barriers between countries, but rewriting the economic rules within countries. The rules do not embody economic principles of open competition so much as the preferences of industry lobbyists that had the best seats at the U.S. Trade Representative’s table. The outcome is an agreement that fails to address America’s economic needs and geostrategic goals.

The most generous models predicting TPP’s economic impact—from the Peterson Institute for International Economics—estimate it would raise U.S. GDP by $88 billion (in today’s prices) by 2025. This less than 0.4 percent increase is smaller than the rounding error in official GDP calculations. Why is impact so low from a trade bloc covering 40 percent of world GDP? Most welfare gains derive from countries lowering their own barriers—something we have largely done.

{mosads}Even if one expected different equity outcomes from more growth given the same unequal U.S. distribution structure, there’s reason to believe TPP will lead to higher inequality: trade adjustment would eliminate jobs and businesses in more labor-intensive industries—not just manufacturing, but in services of increasingly higher skill—faster than trade creates them in expanding industries. Recent research by MIT economists Daron Acemoglu, David Autor, and co-authors shows that such import shocks decimate local economies, causing higher unemployment, slower wage growth, and straining social expenditures and tax revenues.

TPP goes far beyond mere tariffs and trade. All sides agree TPP’s most significant provisions address “behind the border” measures—not what happens between countries, but how the economic rules will work within countries.

To highlight two major issues, first is TPP’s investor–state dispute settlement mechanism (ISDS). Here, Elizabeth Warren and progressives are joined by the likes of the Cato Institute and The Economist magazine in raising concerns that ISDS serves to empower global businesses against public regulation. Understandably, global businesses would like assurance against expropriation and discriminatory treatment where rule of law is underdeveloped. But they can already buy private insurance against such risks. That USTR also insists on ISDS in an agreement with Europe, where no one questions legal standards, reveals the lie that this is about protecting investor rights, rather than expanding them.

Second is TPP’s expansive intellectual property protections. Economic research is clear that patents do not increase innovation or growth. Rather, they serve to raise consumer prices and restrain competition. The agreement reportedly will allow “ever-greening” of drug patents and aim for more stringent exclusivity for biosimilar medicines than even President Obama’s budget proposed, meaning less access to medicines and slower development of new ones in TPP members and beyond.

Proponents also argue TPP’s importance to buttressing Asia-Pacific allies with an implicit economic ring-fence around China’s rising power and influence. It’s a Cold War containment strategy, but in the 21st century the United States is no longer the epicenter of the world economy. China’s economic transformation under authoritarian capitalism and expanding geopolitical influence pose real foreign and economic challenges for the United States. A strategic agreement countering China’s rising influence, to be effective, requires two things: First, it must truly set high standards for international trade and investment; second, it must largely exclude China from the benefits, diverting investment and trade to TPP countries, thereby enticing China to rise to TPP standards. TPP does neither.

Chinese officials and technocrats are as enthusiastic about TPP as the Business Roundtable. That’s because the 1 percent in both countries stand to gain hugely from a deal allowing both to expand supply chains into lower-cost developing Asia.

TPP will not lock-in a U.S. advantage. China is already more integrated than the U.S. with TPP countries: their total trade in the region nearly doubles ours, and they outpace us in foreign direct investment in all members except Canada and Mexico. Integration with TPP countries means that Chinese producers can enjoy the agreement’s benefits by investing in or trading through TPP countries, without reciprocating to TPP’s preferential terms. How big an economy is and its geographical proximity to others—the “gravitational factors”—matter much more for international trade patterns than do agreements like TPP. China will be bigger, grow faster, and be geographically and culturally closer to these countries no matter what we do.

Last, American-led TPP does little to out-compete the influence bought with China’s nearly $300 billion commitment to development financing in the Asia Infrastructure Investment Bank and other initiatives. U.S. officials strategically sought to brow-beat allies into shunning China’s proposal. They earned no coalition of the unwilling, just a diplomatic blunder isolating us from the global community and losing us a seat at the table. Now, they are worried about damaging America’s reputation if Congress rejects TPP?

Those marching TPP toward passage are right that strengthening international relationships is essential for ongoing U.S. leadership—be it economic, political, or cultural. No American should relish a failure to build deeper, more open relations with foreign partners, nor should we retreat from trying. But getting to a deal that serves more than the narrow interests of big corporations, their CEOs and shareholders will require Americans be willing to walk away from the written without their voice.

Hersh is senior economist with The Roosevelt Institute.

Tags Elizabeth Warren

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