Home > Uncategorized > The slow, painful death of the TPP

The slow, painful death of the TPP

from Dean Baker

In spite of the hopes of many elite types for a last-minute resurrection, it appears that the Trans-Pacific Partnership (TPP) is finally dead.  This is good news, but it took a long time to kill the deal, and the country is likely to pay a huge price for the execution.

The basic point that everyone should know by now is that the TPP had little to do with trade. The United States already had trade deals with six of the 11 other countries in the pact. The trade barriers with the other five countries were already very low in most cases, so there was little room left for further trade liberalization in the TPP.

Instead, the main purpose of the TPP was to lock in place a business-friendly structure of regulation. The deal was negotiated by a series of working groups that were dominated by representatives of major corporations. The regulatory structure was to be enforced by investor-state dispute settlement tribunals. This is an extrajudicial system that would be able to override US laws with secret rulings that were not bound by precedent or subject to appeal.

In addition, the TPP would strengthen and lengthen patent and copyrights and related protections. This is protectionism: It is 180 degrees at odds with free trade. These protections can raise the price of protected items, like prescription drugs, by a factor of 10 or even 100. This is equivalent to tariffs of several thousand percent, with the same waste and incentives for corruption. Free-traders oppose such protections, if they are honest.  

The dishonesty used to push the TPP continued with the post-mortems. Both The New York Times and The Washington Post gave us stern warnings about how China is likely to capitalize by pushing ahead with its own trade deal for East Asia and the Pacific. This appeal to anti-China sentiments is striking, since it completely contradicts everything that the “free traders” ordinarily say about trade.

First, we ordinarily believe that more prosperous trading partners are good for the United States. If China and other countries in the region reduce their trade barriers, it should lead to faster growth, making them better customers for US exports and better suppliers of high-quality imports. This is the reason that the United States generally supported the growth of the European Common Market, and later, the European Union.

There is an argument that we may not want to see China, a country without a democratic government or respect for basic human rights, get even stronger. But it is not clear what the alternative proposal is. Furthermore, almost without exception, the current group of China fearers was 100 percent supportive of admitting China into the World Trade Organization without imposing conditions like respecting the rights of workers to organize. In other words, no one should take these people’s concerns on China very seriously.

If we do want to push forward on “free trade,” we should take the concept seriously and not just use trade pacts as a tool to redistribute income upward. A good place to start would be to focus on removing the barriers that prevent foreign workers in highly paid professions (e.g. doctors, dentists, lawyers) from working in the United States.

It is illegal to practice medicine in the United States unless you complete a US residency program. As a result of such restrictions, our doctors earn on average more than $250,000 a year, twice as much as they get in other wealthy countries. Free trade in doctors could save us roughly $100 billion annually (around 0.6 percent of GDP). There might be comparable gains from free trade in the other highly paid professions. We can design international standards that ensure high quality, but open the door to people trained in other countries.

When it comes to technology, instead of patent and copyright monopolies, how about instead developing mechanisms for freely disbursing new innovations all over the world? There is a lot to the argument for the benefits of free trade. Let’s apply it to innovations in medicine, software and other areas. We know how to develop mechanisms for financing research where the cost could be parceled out among countries.

If our trade deals were actually about free trade instead of increasing profits for the pharmaceutical, software and entertainment industries, this is the direction trade negotiators would be looking. But given the fealty of our politicians to major corporate interests, they don’t even want to see alternatives to government-granted monopolies discussed.  There’s no time for real free trade in these people’s minds.

If the politicians want to get serious about real free trade agreements, it is easy to come up with progressive directions for such deals. In the meantime, we can celebrate the well-deserved death of the TPP, which has proved to be enormously costly for the country.

The decision by proponents of the TPP to push ahead with their deal almost certainly cost Hillary Clinton the election. Trade was a big issue in swing states like Michigan and Pennsylvania, and the people who cared about trade overwhelmingly voted for Donald Trump. So the TPP might be dead, but we will have to deal with its legacy in the form of President Trump.

  1. Lord
    December 1, 2016 at 10:34 pm

    After Boeing, will the Carrier deal pass WTO muster?

  2. December 1, 2016 at 11:15 pm

    No discussion about “…alternatives to government-granted monopolies…”

    This is the identical ailment the state corporatism of communist Russia ran up against. Odds of bankruptcy for the US are worse. a 100% historical failure rate from at least three sources; state subsidized corporations, investment in military empire and increasing friction from global climate collapse.

  3. December 2, 2016 at 1:50 am

    You lost me on this:

    “the Trans-Pacific Partnership (TPP) is finally dead. This is good news,”
    … followed by:
    “This is protectionism: It is 180 degrees at odds with free trade.”

    First you say that you are against the pact and then you say it is 100% at odds with the greatest economic crime perpetrated against our species since slavery. Which one is it?

  4. patrick newman
    December 2, 2016 at 9:44 am

    As for the TPP so for TTIP and Ceta. The latter having overcome the Walloon hurdle but there is enormous popular opposition in Europe to both ‘trade’ deals. All have been exposed as clubby supranational deals that confirn the ascendency of coporatism over democracy. Pity it had to be Trump to stop TTIP or is it he has not yet understood its true purpose?

  5. December 4, 2016 at 3:42 pm

    I always appreciate reading Dean Baker’s columns. However, we do disagree about the mechanisms of adjustment to counteract some of the effects of existing trade patterns, such as they are: corporate dominated, and not in the interests of the economic well being – at least as far as wages go – of most of the working class in the developed West.

    If you accept Karl Polanyi’s insight that the problem with “pure” free markets is that no one, corporations or workers – can live with the cruelties and disruptions of their workings, and as a consequence “everyone” wants to intervene to buffer themselves, or structure the trade deals in their own favor…then will medical establishments in either poorer countries or the US stand for Baker’s recommendations? I think not. Isn’t the better solution in the U.S. to lower the standards a bit in medical schools so that students in the top 10% of applicants might enter, instead of only the 1% (and might tilt towards a more humanistic and less math and chem driven biases…with happier interactions for patients)…with greater public subsidies for poorer applicants and then a requirement to serve in those rural regions where medical care is so scarce, which also happens to be the regions which voted overwhelmingly for Trump?

    It seems to me the struggle, as Polanyi outlined it, has not changed; it’s over the shape of interventions into the marketplace, and which social and economic forces dominate them. You all know who that’s been over the past 40 years of Neoliberalism.

    But as one sketches my line of reasoning out further, into interventions into labor markets for full employment or heaven forbid, “the right to a job” (from FDR’s Second Bill of Rights, the first right), and a robust anti-trust policy, one realizes that the ideological structure of Neoliberalism forbids that…the state is only useful for its revolving doors which favor the existing corporate and financial power structure…

    Look at the reaction of both Bloomberg news and Larry Summers to Trump and Pence’s “Carrier intervention”: the action to save jobs was bad because they threaten capitalism…undermining the “efficiency” represented by always moving jobs to the location of lower labor costs…if you follow the logic of that, where are the interventions on behalf of labor, to make up for what has been lost; this writer doesn’t think it has all been made up on lower prices for imported products and the selling and stocking services of the Targets and Walmarts which now drive the American “industrial” process…and dictate to Chinese & other Asian manufacturers as well.

    Interventions we will have, Trump’s versions, Baker’s versions, or my choice: a more robust social democracy…their nature and who they serve will be determined by which social forces control the state…

    Trump may have been elected, but it is not yet clear how the mass of contradictions at the intellectual level of his economic policies will play out, especially for those he most clearly aimed them: the working class. Mark Danner does a good job of sketching out the contradictions, without making explicit any populist left alternative, Hillary’s defense of the status quo having failed to capture the imagination of crucial constituencies, left and right:

    Here at http://www.nybooks.com/articles/2016/12/22/the-real-trump/

  6. December 4, 2016 at 4:08 pm

    Let me add a couple of other aspects to Dean’s recommendations on genuine “free trade” in the labor supply of doctors. His proposal does not take into account the rising nationalism around the world in response to globalism, some of it based on better common sense than in the citadels of economic orthodoxy; to whit, what developing nation is going to stand by and watch idly as some of its best and brightest scoot off to a higher living standard in the West…especially if the gambit such as Dean proposes becomes a highlighted international policy proposal…protectionism is sure to follow significant “brain drains.”

    Second, Dean is underestimating the cultural side of what he means as a purely economically rational proposal: to increase the supply of doctors; I’m proposing the same only from an entirely domestic perspective, but surely my proposal will also encounter the status resistance from American doctors…sure, part of it, maybe the larger part will be opposition to the directly implied lower incomes but American doctors have been complaining about the rise in paper work and loss of independent judgement to all those insurance efficiency experts questioning every call, constantly looking over the doctors’ shoulders… Loss of income and further loss of status (which surely Polanyi would have recognized)…a mirror of the forces let loose upon the working class…their wages, status as sole “breadwinners” and union protected bargainers…erosion on three fronts, actually…the culture loss competing with the economic…

  7. December 4, 2016 at 11:42 pm

    I’m inclined top agree with Gracchibros that “the struggle, as Polanyi outlined it, has not changed; it’s over the shape of interventions into the marketplace, and which social and economic forces dominate them”. But surely, if the problem is the naive “foxes keeping down goats” understanding of economic self-control via the seller-buyer relationship, when marketing involves the fictitious commodities of land, labour and money, then arguing about the best form of reaction to it is, as Polanyi says is true of both America’s Republicans and Democrats – or Britain’s Conservatives and Labour – conceding rather than resolving the fiction which is the root of the problem?

    The so-called “market” is in reality a hierarchy of markets, with fictitious money at the top creating a fictitious market for labour by creating a fictitious market for land by enclosure of what used to be adequately (if inefficiently) shared resources. If one has real money (i.e. readily available tokens recognised as such rather than as commodities of economic value), then employment will not pay and resources will again have to be shared, with the satisfying work of regenerating them organised on a voluntary basis (much as charities and preservation societies are now operating, with playful competition honoured with prizes for quality of achievement). This is easily managed with the banks providing in the accounting infrastructure for a credit card type economy, in which we have a credit limit reflecting our commitments and work history, but create our own money only as we indebt ourselves by using it. Land ownership likewise cannot be bought with token money, but it can be earned by taking responsibility to society for the work and results of managing it, with change gradually introduced via inheritance evaluations on retirement or death.

    As for economics (as against the economy), control theory has come a long way since Smith’s invisible hand and Polanyi’s island of Robinson Crusoe. It seems Denis Papin invented the pressure cooker safety valve (“letting go” unnecessary employees) as early as 1679 (i.e. just before the founding of the Bank of England), while James Watt produced the first speed governor in 1788 (i.e. just after Adam Smith’s “invisible hand”; https://en.wikipedia.org/wiki/Centrifugal_governor ); but since Polanyi wrote in 1944 we have had not only Shannon’s digital error correction and Wiener’s “cybernetic” steering but the development of analog PID navigational servos, digital information technology and timesharing via internet communications. These enable the same methods of control to be exercised not just by the men at the top pulling monetary strings but by all of us, providing for our own family, professional and community interests like boats, ferries and cargo ships, each making its own way across the open seas.

    If we don’t beat the present establishment at its own game of top-down control by making it obvious (at least to the rising generations) that it is possible to develop this more honest alternative, we will continue to have money financing bailiffs and militia and motivating domestic crime. Shame on anyone who thinks the devil we know must be better than options they, like most of their teachers, haven’t even thought of.

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