The TPP is likely to empower China in the long-run

    President Obama apparently recognizes that China's rapidly growing economy and military pose significant problems for the US and the rest of the world. In response, he urges swift passage of the Trans Pacific Partnership (TPP). "If we don’t write the rules, China will write the rules out in [the Trans-Pacific] region" Obama warned in a Wall Street Journal interview. That outcome would mean: “We will be shut out—American businesses and American agriculture. That will mean a loss of U.S. jobs.” The President's analysis is flawed.

    China's economic rise since 2000 stems directly from a massive net influx of American capital due to its remarkably favorable trade balance. This results from several interlocking factors: (1) China's ownership of vast stores of natural resources around the world coupled with (2) its enormous and very cheap working class enable manufacturers there to produce finished products for the US market at a cost domestic producers cannot match. (3) China's undervalued renmimbi (RMB) exacerbates the American cost disadvantage. The Chinese Communist Party's ongoing practice is to buy dollars with RMB thus driving the dollar up relative to the RMB.

    There is nothing in the TPP that addresses any of these factors. The TPP does not confer upon developing countries like Vietnam any significant competitive advantage that they do not already possess vis-a-vis China. For example, the TPP does not significantly reduce any tariffs protecting the US manufacturing sector from predation by producers in signatory nations.

    The TPP does not address currency manipulation. Of course, even if it did, that would mean little with respect to China since it is not a party to the TPP negotiations. Likewise, it appears that the TPP does not preclude its members from entering into exclusive sales agreements with respect to natural resources with particular countries. So China's ongoing efforts to corner various natural resources will likely continue unabated.

    The President claims that if we don't help write the rules governing commerce along the Pacific rim in Asia, China will. It is unclear what specific rules the President fears. Moreover, it is hard to see how any economic rules China imposes on poor Southeast Asian nations would materially benefit what may already be the world's largest economy. China's muscle comes from its three-headed hydra of cheap labor, cheap raw materials, and cheap currency coupled with nearly unfettered access to US markets. New rules governing Vietnam and Malaysia won't change this.

    The TPP will likely lead to the loss of even more American jobs due to rollbacks of U.S. regulations “in areas such as food safety, banking and finance” that currently prevent some overseas goods from reaching our shores.  It will not, however, materially undermine the commercial advantages that China currently enjoys nor is it likely to stymie Chinese military designs in the region. The upshot of an approved TPP is more American jobs lost to the far east with little direct economic impact on China.

    While enacting the TPP is not likely to hurt China directly or thwart its geopolitical plans, long-term it will almost certainly benefit the totalitarian nation. Ultimately, only the United States can restrain China. Yet, its economic gains at our expense have financed massive military expansion and reduced American containment capabilities. A weaker US economy, more dependent than ever on cheap imported goods, may make Chinese hegemony in east Asia inevitable.

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    In general I'm one of Obama's most loyal supporters.

    Not on this subject. Free trade must impoverish our working class.  Keynes position was to let art and cultural things cross the border but "all goods should be home spun". He was right.


    Thanks Flavius.  For clarity's sake, I have added the phrase "that currently prevent some overseas goods from reaching our shores" to the first sentence of the sixth paragraph.


    Hal, thanks for posting and your premise is rather outrageous---which makes it appealing. But my logic meter just went haywire.

    If we don't do the agreement China gets stronger anyway because they continue to exploit their advantages (except that cheap labor in China is quickly disappearing). 

    But if we do the agreement, there aren't enough China hegemony stoppers to do us any good, plus we become poorer which makes China richer by comparison.

    It may be true that the poorer among us would be made poorer but that is an internal comparison----the "country" would be stronger vis a vis China. So let's focus on our equality problems.

    In a sense we both are looking for cheaper labor outside our shores as well as improving our export capabilities. Why should we capitulate to China in this regard just because we can't get our own skewed income inequalities corrected?

     


    Democrats made sure fast track was voted down. We will see if TPP falls apart, as expected.

    http://m.huffpost.com/us/entry/7267600



    Thanks Oxy - but I'm not sure I understand your points.  1) Why would we become stronger vis-a-vis China if we do the deal?  Exporting more jobs and increasing our trade deficit makes America as a whole weaker, although it enriches a tiny minority.  2) Regarding cheap laborers in China, they are hardly running out.  There are nearly 1.4 billion Chinese.  There may be 300 million Chinese in the middle-class.  Assuming a few million in the ruling class, there are still 1 billion working-class Chinese.  Bloomberg says the IMF estimates that the Chinese will have surplus labor for another five to ten years.  3) How would not doing the deal equate to capitulating to China?  If you're saying that China is or soon will be looking for cheap outside labor, I disagree.  My guess is that the Chinese Communist Party welcomes the day when there are a billion working and middle-class Chinese who will be avid consumers of China-made goods.

    I agree that we need to cultivate our own garden.  We can do that by bringing jobs back home through tariffs and an aggressive anti-currency manipulation policy.  In so doing, we will enhance our ability to constrain China and to help her smaller neighbors.

    Finally, even if wages start to rise significantly in China, our membership in the TPP will hinder any return of some manufacturers to the US as they can much more easily locate to Malaysia or Vietnam than the US.  In any case, there are other advantages to being located in the far east, including China, than just cheap labor.  There is far less government oversight, labor unions are illegal in China and Vietnam cracks down aggressively on them.  Environmental regulations are few and what there are aren't well-enforced.  And, as we've discussed many times in China, at least, the currency is maintained at an artificially low value.


    Hal, "enriching a small minority" does not in my opinion make the country weaker, even though I hate the oligarchy.

    Five years of cheap labor is about the minimal length of time it takes to get an agreement like the TPP in place.

    Would you go for this deal?  Do the TPP deal and simultaneously downsize the banks, set the national minimum wage to $15 an hour, restore the capital gains rate and cap estate tax exemptions at $5 million per couple.

    My problem with the Democrats is that they have a knee jerk objection (not you) but are unable to take it to the next level of strategy to get what they want.


    I probably wouldn't do the deal that you propose since I perceive the TPP exacerbating our long-term trend of making trade deals that lead directly to the loss of millions of decent-paying jobs.  The quid you describe isn't adequate to my way of thinking to make up for the quo of the TPP.  The banks do need to be broken up but Elizabeth Warren has said that she fears the TPP could result in reduced financial regulation, although Obama vigorously disputes that. 

    I believe the current estate tax exemption is just over $5 million but you are suggesting that we cap it at the $5 million mark.  I think that's a good idea but I would also like to see progressivism in the estate tax which is at 40% on the value of the estate above $5 million.  I think 40% is fair from say $5-10 million but how about 50% from 10-20 and up from there to 95% above $100 million and 99% above $1 billion.  There could be allowances made for family-owned businesses.

    I do support a "living wage" minimum wage but my fear is that with corporations so easily able to move production offshore under the TPP and other recent deals, a significant hike in the minimum wage would cause us to lose even more manufacturing and non-location dependent service jobs.

    We agree that Obama has been a terrible negotiator here.  If he had told the Republicans that they had to agree to various progressive programs in return for approval of the TPP, they probably would have compromised.  This would have made it much tougher for Democrats to oppose the deal.


    Looks like the Democrats will get a few concessions but this deal is going go happen.


    It will probably get through the Senate but the House remains an open question unless I'm missing something.  http://www.politico.com/story/2015/05/trade-bill-obama-debate-117797.html


    BTW, Hal, there is a good article today in NYT on this subject.


    We already have 'free' trade with most of these countries. Everyone should read Robert Reich, former Sec. Labor, on the TPP:

    ...It establishes a tribunal outside any nation’s legal system that can force a nation to reimburse global corporations for any such “losses.”

    Big tobacco is already using an identical provision to sue developing nations that are trying to get their populations off nicotine. The tobacco companies are demanding these nations compensate them for lost cigarette sales.  

    This provision would mean less protection from corporate harms here in America. It would require that when the potential cost of a new health, safety, environment, or labor protection is weighed against its potential benefits, the cost of reimbursing corporations for lost profits is added in.

    I’ve been through enough regulatory wars to know this added cost could easily tip the balance against protection.

    The arguments in favor of the deal aren’t credible. The notion that the Trans Pacific Partnership will spark American exports doesn’t hold because the deal does nothing to prevent other nations from manipulating their currencies in order to boost their own exports.

    The argument that the deal will help contain China makes even less sense.

    Does anyone seriously believe American-based corporations will put the interest of the United States above the interests of their own shareholders when it comes to doing whatever China demands to gain access to that lucrative market?...

     


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