From Foreign Policy, 14 January 2014
5 reasons U.S. lawmakers need to get on board with mega-regional free trade deals.
Last week, U.S. lawmakers took a critical step toward inking mega-regional free trade deals with Europe and 11 Asia-Pacific countries — deals that could generate hundreds of billions in revenue and keep the U.S. economy inching along the path to recovery. But passage of the Trade Promotion Authority (TPA) bill, which would allow the president to fast-track free trade deals, is bound to involve a bitter political fight as several Democrats and members of the Tea Party have already lined up in opposition to the law. On the left, TPA raises the usual concerns for labor and the environment, while on the far right it presents one more opportunity to jam up the president. Across the board, lawmakers have raised concerns about transparency.
But without a trade promotion authority, which expired in 2007, the United States will be unable to finalize the Trans-Atlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP), neither of which can be fully negotiated without an authority in place. (Europeans and Asians have indicated they are unwilling to negotiate the thorniest trade topics before they know TPA is in place requiring the U.S. Congress to vote up or down on future deals, rather than amending freshly negotiated texts.) So even if Congress is justifiably angry about the unprecedented level of secrecy surrounding recent trade talks, it needs to see the bigger picture: TPA is critical for American economy, entrepreneurship, and global leadership. Here are five major reasons why:
Growth and jobs. The U.S. economy is recovering, yet headwinds lurk on the horizon — from the Fed’s unwinding to stagnating key export markets. Europe is battling low growth and high unemployment; Japan’s Abenomics has yet to deliver promised growth gains, in part due to persistent protectionism that the TPP would undo; and China’s economy is set to expand at its slowest pace in 15 years. While serious economic turmoil may have been averted, the trillion-dollar question remains: Where is global growth going to come from in the future? Trade is a key place to look: The TTIP is expected to generate an annual $130 billion in gains for the United States and $162 billion for Europe. The TPP, meanwhile, will boost U.S. annual gains by $77 billion and Japan’s by $104 billion. As such, the TTIP will raise U.S. household incomes by $865 annually and create 750,000 new U.S. jobs, while the TPP would generate about $1,230 per household by 2025 — a significant windfall without a dime of deficit spending, and a strong bonus on the $10,000 in average annual income gains American households have already scored due to post-war trade opening. And by locking in first-rate rules and open markets, the trade deals will give U.S. companies the confidence they need to dip into their $5 trillion in cash holdings — enabling them buy American inputs and hire U.S. workers.
Geocommercial edge. As gatekeepers of markets with two-thirds of total global spending power, the TPP and TTIP will amount to giant magnetic docking stations for current outsiders, especially emerging and frontier markets. Most remarkably, China, the world’s largest trader and a TPP skeptic, is seriously considering joining the deal, now seen by various domestic interests as a means to counteract the economic slowdown and drive much-needed reforms, especially of state-owned enterprises. Likewise, Brazil, the world’s seventh largest economy, is being pushed by its business lobbies to consider the TTIP and TPP — a 180 degree turn for a country that completely missed the global wave of trade integration. With Brazil opening, the long-awaited U.S.-led Free Trade Area of the Americas (FTAA) idea could eventually become a reality. The bottom line for Congress: Once done, the U.S.-led deals will forever alter the strategic landscape of the global trading system, with even some cantankerous BRICs falling in line. America will have positioned itself to set the tone and tempo of global trade politics for decades to come.
Digital economy gains. The old U.S. trade agenda — immortalized in such deals as the North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA) — prioritized corporate supply chains: It removed barriers to trade in parts, components, and final products; opened foreign markets for U.S. investors; and sped up customs procedures. These objectives still matter, but physical supply chains will be less critical as 3-D printing and nanotechnology expand. Manufacturers will increasingly be able to print parts and components right off the Web. Meanwhile, the arrival of the industrial Internet, e-commerce, e-invoicing, and online payments all mean that the global economy will increasingly run not on ships but on the cloud.
Few nations are as well-placed to profit from this new order as the United States. Yet barriers are sprouting. Countries such as TPP member Vietnam are forcing U.S. companies to locate servers in their nations as a pre-condition for market access, while Europeans, incensed about the Snowden scandal, are bent on limiting the data that U.S. companies serving European customers can access and transfer back to America. Too many developing nations are now cracking down on Web users for political and protectionist reasons. Ensuring a fair and unfettered digital economy requires enlightened rules on cross-border e-commerce and data flows, intellectual property protections, dispute settlement mechanisms, and so on. The TPP and TTIP offer Washington an opportunity to establish such rules. But unless Congress passes TPA, there will be no new rules — at least not ones that are Made in the USA.
Boost for Main Street exporters. Big business may be spearheading the TPA lobby, but small businesses — the backbone of U.S. economy — also stand to gain. Giant corporations like Apple and GE still dominate U.S. exports, but small businesses are on an export roll, riding the wave of past U.S. trade deals like NAFTA: Some 300,000 small- and medium-sized enterprises (SMEs) collectively generate one third of U.S. exports. Studyafter study shows that these export-driven SMEs are the nation’s fastest growing and most productive companies. They also happen to be among the most vocal of TPA proponents.
Moreover, as e-commerce, 3-D printing, nanotechnology, and other DIY technologies expand, Americans of all walks of life can become one (wo)man-multinationals — designers, assemblers, and sellers of goods and services exported around the planet. This export opportunity will explode between now and 2025, as 5 billion new Internet users log-on across the developing world. In the process, millions of new American jobs can be created and thousands of new businesses launched — but only if smart trade rules are established that open markets and level playing fields globally. The mega-regionals are a perfect venue to start this process.
Restore American leadership. The United States has for decades been the world’s quarterback, brokering differences between nations and providing critical global public goods: a global reserve currency, deep financial markets, vigorous economic growth, and an open trade regime. Today, the devastating financial crisis, disappointing growth, and plain-dumb bickering over the budget risk making “American leadership” an oxymoron. For an administration that campaigned on renegotiating NAFTA and pausing the George W. Bush administration’s vibrant trade agenda, the TPP and TTIP represent a stunning about-face — and the best chance for America to regain its global leadership role.
It’s time lawmakers stop framing trade agreements as Trojan Horses that ship American jobs abroad, and start advocating for trade deals as instruments to secure an open and rules-based global trading system — and to unshackle and empower U.S. companies, small businesses, and garage entrepreneurs to drive America’s economic recovery.