23 Dec 2016
How TPP Critics Muddle Facts, Fictions, and Unfounded Fears: A Point-by-Point Analysis
By Nigel Cory and Stephen Ezell
Consideration of the Trans-Pacific Partnership (TPP) agreement during the final months of the Obama administration will initiate a new phase of legitimate debate, but also a massive campaign of misinformation and hyperbole designed to sink the agreement. The problem policymakers face is that while a small portion of the criticism is valid, the majority of it is not. Some specific technical criticism, like of the agreement’s exemption of financial services from data localization limits, is constructive. However, the lion’s share of the criticism raised by opponents represents an attempt to kill the deal by a thousand cuts, for these opponents fundamentally oppose what the TPP represents: the next step in deep global economic integration and trade liberalization. In sifting through this, policymakers must not lose sight of the bigger picture and ultimate goal: a truly integrated global economy.
Indeed, what’s fundamentally at stake in the debate over the Trans-Pacific Partnership is nothing less than the future of globalization. There are three camps when it comes to the political economy of trade in the United States. One camp—the “globalists”—broadly supports the TPP’s objective of furthering the globalist enterprise by developing a next generation trade agreement, among a large block of nations in the world’s fastest growing economic region (the Asia-Pacific), and that installs new disciplines and rules in reducing barriers and distortions to manufacturing and services trade, expands the size of global markets, and creates conditions in which the most innovative enterprises, regardless of size or nationality, can thrive. To be sure, some in this group might seek technical or pragmatic improvements to some aspects of the TPP—e.g., stronger prohibitions again localization requirements in the financial services sector, more disciplines related to currency manipulation, greater services sector liberalization, stronger protections for intellectual property rights in the life sciences—but they are fundamentally supportive of the TPP’s animating geopolitical objectives. The Information Technology and Innovation Foundation (ITIF) is firmly in this camp.
A second camp—the “liberal Keynesians”—views the TPP through its prism of focusing on privileging worker (as opposed to consumer) welfare and focusing more on equity than growth. 1 As such, many liberal Keynesians are skeptical of globalization and trade, especially trade with low-wage nations.2 This is because they believe that trade, especially with low-wage nations, reduces wage growth for some workers. As the liberal Economic Policy Institute (EPI) writes, “Trade and globalization policies have major effects on the wages and incomes of American workers.”3 In this case, they mean negative effects. In addition, by privileging worker welfare, liberal Keynesians oppose labor market disruption, even if, on net, it produces economic benefits. For them, even a trade deal that would result in net GDP growth might be undesirable if it means that some workers are hurt. In other words, a deal that has mixed employment effects on different sectors—fewer textile or apparel workers but more aerospace and e-commerce workers—would be too disruptive, even if it would move the United States in the direction of being a higher-skill, higher wage, higher value-added economy over the long run. Moreover, they resist global competition because it requires competitive business climates, which mean some limits on how much companies can pay lower-skilled workers and how much regulators can regulate. Better to return to the postwar world of strong unions and an active regulatory state before the post-1990s round of globalization.
But it’s the third group—the “anti-globalists”—that has been most vocal in its opposition to the TPP and most willing to engage in misleading negative messaging. These opponents, who are primarily on the political left (though with some common cause on the Tea Party right), view globalization and multinational corporations as the fundamental problem.4 This collection of voices, under the banner of coalitions such as “Expose the TPP,” fundamentally rejects a world in which multinational corporations are major producers and where global economies are tightly integrated. The anti-globalists view multinational companies, global supply chains, global markets operating according to harmonized rules, and the rise of a consumer-based global middle class as somehow inherently suspect and therefore undesirable. For them, the TPP is the abhorrent hallmark of this globalist enterprise. The anti-globalists believe that every corporate benefit comes at the expense of public benefit and that small and local is inherently more beautiful. They seek a return to an idealized prior world of nationalistic and even localized economies where most products and services would be produced by small businesses (ideally worker-owned co-ops) in close geographic proximity to where they are consumed. For them, the rise of localization barriers to trade—policies that seek to balkanize local production, such as local facilities for information and communications technologies (ICT) for local markets—are preferable, because they fear that they lack the ability to compete on level terms in a homogenized, “corporatized” world of large enterprises that efficiently serve global consumer markets.
In essence, what’s at stake isn’t just the TPP itself: It’s the future of globalization. On the one hand stands a vision of a globally integrated economy that is increasingly market driven, rules-based, and competitive. In such an economy, the corporations (whether large or emerging) that produce and market the most innovative products and services can compete at global scale. This global economic system can maximize innovation, productivity, and ultimately consumer and worker welfare. The other vision is more hidebound and conservative, wishing to revert to fragmented, localized production—often enabled by government policies that limit competition or balkanize production—in other words, a set of policies that will lead to less productivity, less innovation, and ultimately lower consumer and worker welfare.
The TPP is poised to play a pivotal role in the next phase of globalization. First, the TPP promotes the goal of global trade liberalization by establishing a higher-standard trade agreement that should become a model for other global trade agreements going forward. Second, the TPP creates new rules and imposes new disciplines that make substantial progress toward preventing discriminatory, anticompetitive trade policies that a growing number of nations have tried to implement in recent years. This is vital, for continued global integration must come with a strong commitment to open and non-distorted markets on the part of U.S. trading partners. Indeed, if U.S. enterprises and workers are going to be able to compete on fair and equitable terms in global markets—a competition in which they should be well positioned to succeed, especially if the United States ever gets around to putting in place a domestic national competitiveness strategy—it is imperative that we enact trade deals that go substantially beyond the relatively limited World Trade Organization (WTO) trade regimes now in place. Third, and related, is the notion that the TPP can become a “docking station” that enrolls additional nations—and, notably, possibly China in the future—in a high-standard trade agreement that perpetuates the world’s most robust set of trade rules in a more enforceable manner.
Given the importance of the TPP, this report responds to and rebuts many, if not most, criticisms of the agreement, pushing back on the distorted fear campaign being used by opponents. The first section rebuts the strategic claim made against the TPP—that it is bad for the American economy and American workers. For example, opponents claim the TPP will harm America’s consumers, but America’s consumers actually benefit from the more robust global competition that trade engenders and the fact that competition forces producers—foreign or domestic—to innovate and to develop products and services of the best quality and value at the lowest cost. Opponents further claim that the TPP will harm American workers, when in reality the agreement will create conditions in which America’s most innovative and fastest-growing industries and enterprises can thrive in global competition and thus support growing workforces. Moreover, if they carried the day, many of the critics’ objections to the intellectual property (IP) provisions of the TPP—from their complaint that the TPP is too IP friendly or that its antipiracy provisions are too robust— would actually significantly harm the interests of U.S. workers involved in the production of IP-enabled goods and services. But beyond that point, critics further miss that job creation shouldn’t be the focal point on which the merit of trade agreements is assessed. From an international economics perspective, trade neither creates nor reduces the total number of jobs; it redistributes them, ideally toward higher value-added production. Rather, the test should be whether a particular trade agreement engenders the conditions— e.g., large markets that enable economies of scale, particularly for innovation-based industries; robust and market-based competition that keeps firms on their toes; and the ability of nations to specialize in the facets of production in which they are most productive and efficient. When these conditions expand, economic growth can flourish to the maximum extent possible.
The report then examines a variety of issues—including the investor-state dispute settlement mechanism, currency manipulation, and various IP provisions. The report identifies legitimate criticisms of the TPP on some issues, while showing that, in the vast majority of cases, the criticism is simply not valid. Indeed, a substantial portion of the criticism is intentional misdirection by opponents who have an ideological bias against corporations, globalization, intellectual property, or some mix of the three. The report concludes by observing that the TPP represents a vital step in continuing the momentum for wealth-creating global economic integration and trade liberalization.
Please click to read full report.