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Mihir Sharma
US President Barack Obama’s the Trans-Pacific Partnership, his signature trade pact, is very likely dead. President-elect Donald Trump swept to victory in part by railing against such massive trade deals. Today, few in Washington would dare to challenge the view that globalization has benefited cheaper foreign workers at the expense of hard-working Americans.
But Washington’s politicians, Donald Trump — and, yes, his voters — are mistaken about the TPP. Perhaps they haven’t noticed that poorer countries such as India fear the TPP as much as anyone in the U.S — because such deals are designed primarily to benefit Americans, at least in the near term.
I don’t mean to suggest that free trade has been bad for workers in India, China and other developing nations: It hasn’t. Trade has lifted millions out of poverty across the world. When some on the American left bemoan the effect of trade on the working class, they are being as nativist as Trump. Their moral calculus consistently ignores the obvious benefits of trade for workers in poorer countries, and thus barely deserves to be called progressive.
But, even by those standards, they are mistaken about the TPP, which is a different kind of deal altogether. Nations can address the rules governing the global trade in goods in one of three ways. They can raise protectionist barriers to shut down trade — a dead end that would further impoverish their most vulnerable citizens. The poorest 10 percent of Americans, for example, gain 62 percent of their purchasing power from trade.
Or they could do the opposite, lowering tariff barriers to keep goods flowing. Such initiatives have mostly run their course, however, given that tariffs in most countries are already the lowest they’ve ever been. In the U.S, tariff revenues are not even 2 percent of the total dollar value of imports.
Or they could focus on harmonizing regulations across borders in order to smooth out competition and make trade more “fair,” at least as activists in the West have defined it. And this is precisely what the TPP does. For the first time, strict labor and environmental rules matching Western standards are being imposed in principle on all signatories, no matter how poor. A failure to enforce “acceptable†labor standards, for example, “cannot be excused on the grounds of resource allocation.â€
Countries like Vietnam have committed to allowing effective trade unionism for the first time — a commitment that has been made enforceable. And reforms in a range of other “behind the border†regulations have been addressed, including opening up government procurement to competition and ending the unfair advantages given to the public sector. The West has been trying to get trade rules to recognize these issues for years and developing counties have refused — until the TPP. That’s why the deal is a game-changer for global trade, and why it worries developing-country governments so much.
Even countries like India, which isn’t one of the 12 TPP members, know that if the deal goes into effect, they’ll face pressure to carry out similar reforms if they ever want to join the pact. And once major countries sign up to a deal incorporating such standards, they have an incentive to introduce similar rules into other negotiations, such as those dealing with the Asia-based Regional Comprehensive Economic Partnership, or RCEP. Indeed, before Trump’s victory, India’s trade negotiators had worried that had already begun to happen.
All of this is precisely what many trade skeptics in the U.S. claimed was needed in order to provide American workers with a more level playing field. But in the long run, workers from other nations will benefit too, as TPP’s conditions force fairly dramatic changes in member countries. Vietnam will have to open up its cosseted state sector to competition, while Japan will have to do the same with its agricultural sector. Naturally, the adjustment could be painful, and these countries will have to work harder to compensate losers than the U.S. has. But workers and entrepreneurs will gain access to new protections and markets, increasing efficiency and creating new job opportunities.
The larger geostrategic imperatives for the TPP haven’t changed, either. The deal was always meant as a concrete demonstration that the U.S. intended to remain a leader in the Asia-Pacific. China is embedded in the economies of the region; this would ensure that Asian nations continued to have an alternative. As Obama has repeatedly said, if the U.S. doesn’t set these rules for future trade, China will — and that won’t help American (or Indian) workers at all.
Yes, the TPP isn’t perfect, but it is a major step forward for international trade — and for workers everywhere. Trump, while campaigning, didn’t deny the need for trade altogether; he promised “smart†trade deals. It’s up to pro-trade Republicans in Congress, and America’s trade partners, to explain to the president-elect why the TPP is, indeed, smart.
—Bloomberg
Mihir Sharma is a Bloomberg View columnist. He was a columnist for the Indian Express and the Business Standard, and he is the author of ‘Restart: The Last Chance for the
Indian Economy’