Clyde Prestowitz, longtime Far East diplomat and critic, is author of the cover piece in the new fall issue of the Prospect, on the Trans-Pacific Partnership as failed China policy. David Dayen, who has covered a number of economic topics for us, profiled chief trade negotiator Mike Froman, in our summer issue.
We asked Prestowitz and Dayen to discuss the recently agreed TPP deal.
Prospect: Does the TPP agreement that was just announced improve the deal in any significant respects? Does China have anything to fear from this deal?
Prestowitz: To start with your last question, China has absolutely nothing to fear from this deal. Indeed, China may well want to join up. A key factor to keep in mind is that the deal will likely discipline America more than any other participant. For instance, the deal says the U.S. can reinstall tariffs if a country like Vietnam or Malaysia violates the labor or state enterprise provisions. But, based on past performance, the U.S. will never invoke this safety clause because to do so would be tantamount to declaration of economic war and would greatly strain U.S. relations with the very countries it is expressly dedicated to reassuring about America’s support.
If anything, this deal, by dint of its watered down rules of origin on autos and auto parts, will likely increase U.S. dependence on Chinese supply chains. Japanese auto producers will increase the amount of Chinese parts in their autos.
The labor part of the deal is not enforceable. The currency side agreement is a joke. By not being part of the main deal, it inherently has second-class status, and the refusal of a succession of U.S. presidents to respond to blatant currency manipulation over the past 40 years suggests that this part of the deal is strictly aimed at getting the whole thing passed through Congress.
Dayen: I have not been privy to all the details. There appears to be improvements around the edges: preventing tobacco companies from using the investor-state dispute resolution process, a lower exclusivity period for high-cost biologic drugs. But these are pretty small. The main structure of the agreement was already in place, one designed to protect incumbent profits and sacrifice U.S. jobs, with very dubious claims about labor and environmental standards that have simply never been enforced in other trade agreements, including by this administration.
What's fascinating is how this might affect the debate in Congress. It may retain the nominal Democratic support for the agreement but lose just as much on the right. Seventeen House Republicans, mostly from farm states, have already said last week they wouldn't support TPP if it had the tobacco carve-out. That's enough to kill the deal in the House.
The biggest announcement on TPP recently was not this agreement, but John Boehner's resignation. A large segment of the coalition that ousted Boehner voted against Trade Promotion Authority, including 23 members of the House Freedom Caucus and is leader, Jim Jordan. Whoever becomes speaker will have to determine whether it's worth whipping a vote that the group powerful enough to toss out the last speaker hates. And the vote can't happen, because of specific timelines in the deal, until February, the heart of the presidential nominating season and before most deadlines for House primary races. Will the GOP rank-and-file really be interested in giving Obama a legacy item on his way out the door, risking their own positions in the process?
I don't think any fast-tracked trade agreement has ever been voted down by Congress. But maybe there's a first time for everything.
Prestowitz: Yes, I agree that there is a first time for everything and this might be it for a trade deal. Getting this thing past the Congress in a presidential election year was always going to be difficult. But given the disarray on the Republican side and the uncertainty about the new speaker and his priorities, it’s going to be uphill all the way.
I wonder about the tobacco deal. You’re correct that the 17 Republicans look like they would kill the deal just on that point. But I wonder if Froman would have made the deal without some kind of nod from the Republicans?
Dayen: It seems like Froman was in a bind on tobacco either way. He was going to lose votes on his left or his right. They probably made the deal where they hope they can bleed the least support. The big question is if R.J. Reynolds or Altria bolts from the deal.
To your China point, I've been amazed how the administration has been able to get away with simultaneously saying that we need to “contain” China through this deal, and also that they would want to join it later, which is, I don't know, the polar opposite of containment? As far as rule of origin goes, the enforcement of that sounds like a mess. How does someone at a shipping port in Vietnam or Malaysia decide whether China made 25 percent or 30 percent or 40 percent of a good? It sounds impossible, and susceptible to political influence.
Prestowitz: A key factor regarding passage of the deal through Congress will be the attitude of key industries. I have been surprised just in the past several minutes to see an article quoting the sugar industry (traditionally protectionist) as saying that it will not be much affected by the deal. A friend in the textile industry just told me that it is satisfied. Ford Motor has voiced its displeasure, but nothing from the other auto guys suggesting that they can swallow it. So maybe, on the whole, the industry side is pretty much on board.
On the other hand, the public is demonstrating a lot of dissatisfaction with the traditional ways of doing things in Washington. This deal is not going to reduce economic inequality in the U.S. Rather it is going to add to it. If some of the presidential candidates pound away at that fact, it is possible to foresee a wave of public frustration and anger leading to defeat of the TPP in the Congress.
Dayen: One question is whether this is a “priority” for industry or really a priority. Will they fund ads, will they use lobbying dollars, or will they hand out mild press releases with nominal support but put no muscle behind it? Given the winds swirling through Washington, I think this will need a little muscle, beyond that from the administration. Especially because the biggest threat to passage comes from House Republicans committed to the administration's destruction.
Prestowitz: I don’t think this is a priority for industry. It really only adds Brunei, Vietnam, and Malaysia to the list of those countries that have a free trade deal with the U.S. It may marginally add some things for high-tech industries dealing with Japan, but it’s really not a big deal for any industry except maybe the auto industry and there Ford has already come out against it. So this won’t be like the situation was with NAFTA. There industry was really out in force. It won’t be that way for TPP.