The Trans-Pacific Partnership, a proposed free trade agreement with 11 other nations, is key to President Obama’s strategy to counter aggressive Chinese efforts to undermine U.S. influence and security guarantees in Asia. However, to foster the prosperity of American families, the trade deal must be complemented by effective measures to protect U.S. workers from foreign government currency manipulation and subsidies.
Reducing tariffs and other barriers to international commerce should increase both imports and exports, and move Americans from lower wage jobs, such as assembling iPhones, to higher paying employment, such as designing new products and solving tough software problems.
However, when trade agreements create more imports than exports, unemployment results and economists would expect the value of the dollar to fall against foreign currencies. That would raise prices for foreign products in U.S. stores and lower U.S. export prices to rebalance trade and create good-paying jobs, but too often foreign governments pursue monetary policies that block that process.
In addition, many Asian nations pursue policies that target specific industries and encourage foreign firms to establish factories and research facilities in their economies. Those subsidized facilities ultimately export products into the U.S. markets and create even more unemployment here.
Overall, U.S. imports exceed exports by more than $500 billion annually—killing about 4 million American jobs—because Japan, China and other countries pursue policies that cheapen their currencies against the dollar and otherwise subsidize sales of products in U.S. markets.
Currency manipulation is illegal under World Trade Organization rules but both Presidents George W. Bush and Obama have ignored pleas from industry to bring complaints in the world trade body.
Economists on the right and left and in the center have suggested policies to correct the resulting harm to U.S. workers, but those have gained no traction at the White House.
Similarly, trade laws permit the Commerce Department and U.S. International Trade Commission to impose tariffs on subsidized imports that destroy jobs, but those have been weakened in recent years. For example, Asian exporters have managed to evade those laws by shipping products through intermediate countries and altering customs classifications.
In Congress, members on both sides of the aisle have proposed fixes to the fair trade laws that the White House should support as part of legislation implementing any new trade deal.
More broadly, modern trade agreements reach deeply into the treatment of foreign goods and services by altering domestic regulations for product standards, the environment, patents and the like. Foreign leaders won’t negotiate on those issues if Congress can alter U.S. commitments during the ratification process. Hence, Congress has granted presidents since Gerald Ford Trade Promotion Authority, which binds the House and Senate to put trade deals to a simple up or down vote—with little opportunity for amendments.
More and more, the United States pays its way in the world by developing new products and intellectual property, but the trade deficit has pushed down investments in R&D enough to slash about 1.5 percentage points off annual U.S. growth.
Presidents Reagan and Clinton were forceful advocates of U.S. worker interests in international trade and from 1980 to 2000, the economy accomplished 3.4 percent growth and family incomes rose $9,900.
The same cannot be said about both the recent Bush and Obama administrations and since 2000, U.S. GDP growth has averaged a mere 1.8 percent and average family incomes are down about $4,600.
A Trans-Pacific Partnership, which would liberalize trade with 11 Pacific Rim nations including Japan, offers great economic potential and would importantly reinforce U.S. security ties with Asian nations, but it only makes sense with enforceable disciplines on currency manipulation and unfairly subsidized foreign goods.
Congress should require the President to agree to those in exchange for approving Trade Promotion Authority to finalize the Trans-Pacific Partnership trade pact.
Morici served as chief economist at the U.S. International Trade Commission from 1993 to 1995 and is a professor at the University of Maryland and a national columnist. He tweets @pmorici1