Tag: trade

Aiming to Set New Global Trade Rules

Today’s essay for Cato’s Online Forum on the Transatlantic Trade and Investment Partnership comes from Berkeley Political Science Professor Vinod K. Aggarwal, who explains the growing popularity of trade liberalization outside the WTO, and discusses how third countries might react to a TTIP agreement between the United States and European Union.

This essay and this forum are associated with an upcoming TTIP conference at Cato on October 12.

The Economics, Geopolitics, and Architecture of the Transatlantic Trade and Investment Partnership: A Cato Online Forum

In mid-2013, the Transatlantic Trade and Investment Partnership negotiations were launched to great fanfare with a pledge from its architects to conclude a deal within one year on a “single tank of gas.” Nearly two and a half years and 10 negotiating rounds later, a final TTIP deal is nowhere in sight. Well, if there is anything that trade policy observers should know by now to be an ironclad law of physics, it’s that deadlines for concluding negotiations are never respected.

Concluding trade agreements can be a long and arduous process, especially if the United States or the European Union is a party to the negotiations.  So when the United States and the European Union (who are used to dictating the terms of trade deals to smaller economies) are both party to a negotiation, it probably makes sense to budget in a little extra time for refueling – and perhaps even a new set of tires.

With that in mind, on October 12 the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies will host a conference titled: Will the Transatlantic Trade and Investment Partnership Live Up to Its Promise? Featuring 30-35 international trade and investment policy experts from academia, think tanks, business, and government, the conference will examine the economics, geopolitics, and architecture of the TTIP during a full day of panel presentations, interviews, and debates. The program is open to the public and you are encouraged to attend.

Among the many questions that will be raised during the conference are:

  • What are the prospects for reaching a comprehensive trade and investment deal between the United States and the European Union?
  • What exactly is under negotiation, and what is the strategy for advancing those negotiations?
  • Would it make sense to exclude sacred-cow issues that will only bog down the negotiations?
  • Is it wise to continue pursuing a single comprehensive deal for all issues on the table, or is it better to aim for a sequence of smaller agreements?
  • Should a deal include other closely integrated countries, such as Canada, Mexico, and Turkey?
  • How will TTIP affect the multilateral trading system, relations with the BRICS countries, and prospects for developing countries?
  • Where are the biggest potential gains for U.S. and European businesses?  For consumers and taxpayers?
  • What are the major domestic political impediments?

Trump, Ford, and Trade Policy

I don’t think anyone likes the idea of responding to all of the various statements that Donald Trump makes, but when he says something vaguely – emphasis on vaguely – substantive on an issue, a short response might be of value. In a recent interview with Chris Cuomo, Trump talked about trade policy, and had this to say (starting around the 7:00 mark) about Ford doing some of its manufacturing in Mexico:

Trump: … Ford is building a $2.5 billion … manufacturing plant for cars, trucks, and parts in Mexico.

Cuomo: How do you keep them?

Trump: Uh you keep them by…

Cuomo: … ‘cause the labor’s cheap that’s why they go.

Trump: For one thing, you keep them by talking to them. But I would say you keep them … if they go there, you know… they’ll make cars, and they’ll sell them to the United States no tax, no nothing. Just come right across the border. …

Cuomo: …and they say the labor’s cheaper over there.

Trump: And you know what, then we’ll say that’s fine. If the labor’s cheaper over there that’s good, but you know what, you’re gonna have to pay a tax to get those cars back in. You’re gonna have to pay a penalty. And if you put a… a penalty on, a tariff or whatever you call it … 

My sense is that Trump’s conception of Ford as a company is rooted in the 1950s, or maybe even the 1920s. In his mind, Ford is owned by Americans, produces in America, and sells to Americans. In reality, though, Ford has long been a global company. Here’s something I wrote about Ford a while back in the context of a paper on international investment:

The Trans-Pacific Partnership Takes Center Stage

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

Fear of Chinese Economic Hegemony

In the context of discussing the Trans Pacific Partnership (TPP), and the U.S. role in the Asia-Pacific region, Robert Kagan of Brookings raises the specter of competition with China and says this:

Economically, China would like to turn Asia into a region of Chinese hegemony, where every key trade relationship is with Beijing.

Along the same lines, law professor Noah Feldman says:

China is using its close economic relationship with its neighbors as leverage to build its geopolitical position. Its ultimate goal is to displace the U.S. as the regional hegemon.

I’m puzzled by statements like these.  What do Kagan and Feldman think Chinese economic “hegemony” in Asia would look like?  What exactly do they fear?

I don’t know the answer to what’s going on in their minds, but I have tried to look at what China is actually doing.  One thing it is doing is signing trade agreements with other countries in the region.  So are these trade agreements part of a scheme to dominate its neighbors?  Well, the text of the agreement China signed with Australia was just released, so let’s take a look at some of what it says.  As described by the Australian government, China would liberalize a lot of its trade with Australia, including the following:

  • Health and aged care services: China will permit Australian service suppliers to establish profit-making aged care institutions throughout China, and wholly Australian-owned hospitals in certain provinces. This will greatly expand the Australian private health sector’s offering of medical services through East Asia.

So Australia is touting the agreement as a way to build hospitals in China, and more generally to sell products there. (Australia also notes that 92.9 per cent of China’s imports of resources, energy, and manufactured products from Australia will enter duty free right away, with most remaining tariffs removed within four years.) This makes the whole idea of China’s “economic hegemony” sounds a lot less scary. Rather than setting up a system to compete with the United States, China seems to be participating in the same rules-based, liberalizing trading system that the United States and just about everyone else is in.

I wrote more about this issue in a recent Free Trade Bulletin.

Today’s Trade Vote Is Getting A Partial Do-Over Next Week—Here’s Why

A very unexpected outcome during a series of votes on trade policy in the House of Representatives has managed to confuse pretty much everyone today. 

The most important and controversial bill in the package was Trade Promotion Authority, which narrowly passed the House 219-211 with 28 Democrats in favor and 54 Republicans opposed.  Trade Promotion Authority (TPA) will enable the President to conclude the Trans-Pacific Partnership (and other) trade negotiations and submit a final agreement to Congress for an up-or-down vote. 

But in order for TPA to go to the President’s desk, the House must also pass Trade Adjustment Assistance.  That’s because TAA was included together with TPA in the bill the Senate passed last month. 

Normally, Democrats support TAA, which is an entitlement program for people whose jobs are displaced due to import competition.  Many Republicans oppose TAA as a useless, big-government entitlement program.  House leadership chose to hold two separate votes on TAA and TPA to prevent Republicans from voting no on the package out of opposition to TAA. 

That strategy may have backfired.  Because advancing TPA required passage of TAA, Democrats were able to scuttle the whole thing by voting no on TAA.

But it’s not over yet.  Republican leadership is planning a do-over on the TAA vote in order to salvage TPA.  So there’s likely going to be another vote on TAA early next week.  In the meantime, Republican leadership and President Obama will be madly lobbying their respective party members to muster enough support.

For practical purposes, this result means that Congress has kicked the can down the road for a few more days.  Today’s vote was definitely not a win for the President or GOP leadership, but they haven’t been defeated either.  They can still pull out a victory if they can win enough votes next week to pass TAA—a bill that was defeated today by a solid 126-302.

Strange Bedfellows, Schisms, and Subterfuge: Where Does the Trade Agenda Stand?

The Trans-Pacific Partnership is a still-evolving trade agreement that would reduce tariffs and other barriers to goods and services trade between the United States and 11 other countries. It also would likely include provisions designed to protect certain U.S. industries from the full effects of competition.  A TPP agreement, then, would likely increase our economic freedoms in some realms and reduce them in others.  How these pros and cons would be manifest is unclear at the moment, given the fact that the deal is not done.  But it would a mistake to forego the opportunity to evaluate a completed trade deal that could deliver significant benefits. 

It is broadly understood that the TPP negotiations cannot be concluded without the Congress passing, and the president signing, Trade Promotion Authority legislation.  Without TPA, the president could not be sure that any trade deal brought home reflected the official wishes of Congress, and the likelihood that foreign negotiators would put their best and final offers on the table—knowing that Congress could unravel the deal’s terms—is close to zero.

The Senate passed TPA legislation (along with language reauthorizing the Trade Adjustment Assistance program) on May 22.  The House is likely to take up the bill this week.  At the moment, the president is in lockstep with a large majority of congressional Republicans, who support trade liberalization and see TPA as essential to the process.  But some Republicans (mostly from the conservative wing), who are wary of giving this president any more power, have joined ranks with the vast majority of congressional Democrats in opposition to TPA.  Meanwhile, Democratic presidential frontrunner Hillary Clinton—an architect of the TPP as Secretary of State and a potential heir to the trade agenda—has refused to take a position on TPA.

The spotlight on trade policy has generated much more heat than light.  Misinformation abounds.  Rationalizations masquerade as rationales.

This new Cato Free Trade Bulletin is intended to dispel some of the nonsense that has been circulating and to present a brief, objective assessment of what has transpired and what lies ahead for TPA and TPP.