Is the TPP Necessary as a Response to China?

Paul Krugman has a blog post on the Trans Pacific Partnership (TPP) today.  Overall, he is skeptical of the need for it.  He refers to a recent op-ed by Larry Summers, and notes that Summers appears to support “an idealized TPP that could have been,” but is “against the TPP that actually seems to be on the table.”  Krugman says he feels similarly.

Tyler Cowen responds as follows:

I agree with much of the economics in his post, though I would frame the points with a different kind of rhetoric.  But I think Krugman is nonetheless wrong to oppose TPP.  You will notice the word “China” does not appear in his argument.  He closes with a question: “Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?”  The answer is simple: this deal either happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well.

Cowen is one of my favorite bloggers, both for style and substance, but I want to push back a little bit here.  The alternative deal he is referring to is the Regional Comprehensive Economic Partnership (RCEP), a negotiation among 16 countries, including China and India, in the Pacific region.  There is a good deal of overlap, in terms of participating countries, with the 12 TPP parties.  I think he is making two points here: (1) If there is no TPP, there will be an RCEP, and that will be bad for the United States; and (2) the RCEP will reflect Chinese priorities, not U.S. priorities, and that will be bad for the United States.

Just briefly, let me comment on both points.  First, the RCEP may be, to some extent, a response to the TPP.  If the TPP fails, the motivation for the RCEP might also diminish.  Furthermore, regardless of what happens with the TPP, it will not be easy to complete the RCEP.  Getting India, China, and 14 other countries to agree will not be easy.  So there may never be an RCEP.

Second, the reference to Chinese terms makes it sound like this will be an agreement that establishes state-owned companies as the norm.  In reality, if you look at the topics covered, I’m not sure this agreement would be much different than any other trade agreement, except perhaps less emphasis on labor rights and intellectual property protection than in U.S. agreements.  There will be tariff lowering, services liberalization, and all the usual issues.

In my view, then, we should consider the TPP on its own merits and not worry so much about what other countries do.  If they want to liberalize amongst themselves, that’s great.  But that’s not a threat, just an incentive to do a better job with trade negotiations ourselves.