SHOPPING FOR THE BEST DEAL ON BLACK FRIDAY? HOW ABOUT RESTORING AMERICA’S PARTICIPATION IN THE TRANSPACIFIC PARTNERSHIP? IT’S THE TRADE DEAL THAT WILL HELP AMERICA BUILD BACK BETTER.
It’s that time of year again here in America – Black Friday, the day the stores go from “being in the red to black.” Traditionally, shoppers line up outside of retailers and malls – typically hours before they open – fighting the chill as dawn approaches, waiting for the sales to begin. Humans, and Americans in particular, love a sale. People love a bargain. We all love a deal. Well, if the incoming Biden Administration were waiting in the cold this Friday waiting for a great deal, they should check out the fabulous benefits inherent in rejoining the Trans-Pacific Partnership trade deal.
We understand there are a myriad of issues confronting the incoming Biden Administration, ranging from the global pandemic, the potential for a double-dip recession, social justice concerns, untenable unemployment, and deeply entrenched political polarization. The policymakers of the next administration certainly have their…um, shopping bags full.
First Among Many
The first priority of the next administration should be the health and welfare of America’s citizens. The United States is (and has been) setting records in terms of the coronavirus – but for all the wrong things. After the previous administration’s bungling of the pandemic response, a cohesive federal response and clear messaging from the White House needs to be a priority and will take much effort. However, we believe that the Biden Administration will be capable of pursuing multiple urgent goals at the same time. One of the best ways for the Biden Administration to quickly address numerous problems facing our nation is for the United States to work to join the Compressive and Progressive Agreement for Transpacific Partnership (CPTPP).
Refreshing Our Memory
The Trans-Pacific Partnership, or TPP, was a trade agreement between the United States and eleven other countries bordering the Pacific Ocean. The TPP would have made trade with the U.S. a major hub of economic activity in the region while also raising environmental and labor standards in participating countries. Unfortunately, the Trump administration exited the TPP discussions in 2017, stating concerns for American manufacturing jobs and an adherence to an “America First” trade policy as the primary reasons.
The eleven countries remaining in the TPP talks finished negotiations and are now proceeding with codifying what became known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) into their respective national laws. As it stands now, all signatories to the CPTPP except three have fully entered the pact into force.
Many analysts are doubtful that a Biden administration can quickly turn American trade policy around. However, while Joe Biden might not have spent much time recently discussing trade, instead focusing on domestic issues such as eliminating college debt and the economics of the middle class, many of the nations participating in the CPTPP would likely welcome America’s return. A major hurdle from the initial 2016 efforts to pass the TPP through the U.S. Congress still remains – a general misunderstanding, and thus, mistrust of the role that trade plays in the American economy. The misconception can be overcome with the imperative to grow our economy. The entrance of the U.S. to the CPTPP would work to mitigate many of the problems currently plaguing the nation. Indeed, the recently approved USMCA trade agreement contains much of the same language (⅔ by some estimates) as the TPP. One hurdle the Biden administration could face is attempting to get labor regulations (necessary for Democratic support of USMCA) into CPTPP. But this past election cycle has changed the calculations in terms of how many ‘Ds and Rs’ are needed and it is quite possible that potential economic benefits could overshadow labor concerns momentarily.
Costs upon Costs
While the Trump administration sought to create “better” trade deals bilaterally, China completed negotiations with its partners and neighbors on the Regional Comprehensive Economic Partnership (RCEP), signed this past Sunday (11/15). Whereas the TPP would have the economies of the Pacific roundly focused on America, and vice versa, the RCEP is set to firmly entrench China as the market of choice and trading partner most likely to benefit in the region. In the parlance of Black Friday – the PS5 came out early, everyone bought one, and they sold out, now America is left with the Xbox and no one to play with.
America excused itself from international trade norms and, instead, started drastically expensive trade wars – most prominently with China. The concerns of the Trump administration such as currency manipulation, intellectual property rights, the role of state owned enterprises, and labor standards are long-standing issues between U.S. businesses and China and need resolution. However, there are numerous ways to confront the trade that don’t involve retaliatory tariffs and ad hoc protections that harm U.S. farmers, business, and consumers. The Trump administration took the most destructive and expensive and route possible.
It would be hard to put a specific number on the cost of Trump’s trade war with China. However, estimates have ranged from $46 billion(1) paid by businesses in tariffs to $316 billion by the end of 2020(2) to $1.7 trillion in total stock value(3). Many of these estimates don’t even account for the numerous farmers bankrupted and $28 billion in subsidies doled out as ‘relief payments’ to farmers as supply chains were disrupted.
The initial losses created by the Trump administration’s trade war have only been exacerbated by the economic impacts of the global pandemic. Research from the International Monetary Fund indicates that the Asian nations of the CPTPP are some of those most likely to see a quick economic turnaround. What better way to boost economic exports and growth for the U.S. than by rejoining the CPTPP and hitching a ride on the estimated 8% economic growth for emerging Asia(4) next year?
As with most Black Friday deals, it is the economics – the discounts – that are the main attraction. In this same vein, the economics of rejoining the CPTPP are, perhaps, the best way for the Biden administration to sell it to Congress and the nation however, the benefits go far beyond that on the global stage.
If the global pandemic has taught us anything it should be the necessity for resilient supply chains. By increasing trade options and incentives for additional trading partnerships, the CPTPP helps to build resilience and sustainability into the supply chains of U.S. manufacturers. During original TPP negotiations, Obama administration officials had a stated goal of doubling manufacturing exports and many of the officials from that time are now a part of Biden’s transition team.
“Trade and currency wars increase uncertainty and depress investment. Reversing this is crucial, given the pandemic’s effects on employment and output.”(5)
Working toward a return to traditional trade norms and international rules will reassure trading partners – not only in Asia, and not only in terms of trade – that there is now an adult in the White House. A Biden administration would do well to focus on the merits of trade with the U.S. and our rules-based approach. As Biden works to remove and rescind tariffs on our traditional allies, the U.S. will once again be able to form coalitions and partnerships (with like-minded nations respecting protections for investment, IP, labor, and the environment) to more effectively hedge China while boosting American exports.
The Regional Comprehensive Economic Partnership (RCEP) was already being developed before Trump pulled out of the TPP discussion, but now as RCEP comes into force, it will enhance China’s position in terms of trade and engagement with their Asian neighbors while diminishing the U.S.’s position.
“… geopolitics is an underrated reason to reenter the TPP. It creates a trading bloc of Asian nations centered around the U.S. instead of China, taking advantage of Asia’s emerging role as the world’s economic center of gravity in a way that also helps balance out the region.”(6)
Another way that countries in the region have been turning toward China is through the Belt and Road Initiative (BRI). Much has been written about the debts accumulated by countries participating in the BRI and many nations/communities bristle under the weight of Chinese influence. However, as the global pandemic adds additional pressure to economies the world over, countries will be unable to remove the yoke of Chinese funding/financing. The only way for the Biden administration to increase trust among other nations and have them better align their national/economic interests with ours is through rules-based, economic integration. Trade and trade agreements such as the CPTPP is that integration we seek and will go far to resolve the problems that the U.S. is facing while also improving the economic outlook for our allies globally.
At Home and In The Pacific
We understand that trade and trade policy is only one of many issues facing the incoming Biden administration, and a cohesive, proactive response to COVID19 must be the first priority. However, any President must tackle numerous issues at once. By giving the CPTPP trade deal the attention it rightly deserves early, it will serve to mitigate many of the economic (agricultural, manufacturing, unemployment, and otherwise) threats facing the nation, creating a more collaborative environment for addressing our many other pressing concerns. Indeed, this Black Friday, rejoining the CPTPP deal might be the only gift worth giving.
Erik Sande is the Chief Public Policy Officer at DevryBV Sustainable Strategies.
Devry Boughner Vorwerk is the founder and CEO of DevryBV Sustainable Strategies.
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