Cost of being wrong about trade is paid by American workers

President Obama, powerful business and government elites, special interests and reflexive free trade advocates are working hard to garner congressional support to consummate the ambitious and furtive 12- nation trade agreement known as the Trans-Pacific Partnership (TPP). This is a big deal; linking 40 percent of the world’s economy- so big that it has been negotiated in secret.

We are told that free trade means the unimpeded flow of goods, services, capital and labor across international markets. In this best of all free trade worlds, consumers get the lowest prices.

This is all well and good for American consumers, but what about the increased unemployment and reduced wages free trade also brings? Unless consumer prices have fallen by more than the average worker’s income in recent decades, this may not be such a great deal.

In the real world, critics say the TPP is more like managed trade than free trade. America’s trading partners engage in currency manipulation to make their exports cheaper and U.S. exports more expensive than if exchange rates were determined by market forces. Consequently, some lawmakers worry that currency manipulation by trading partners is an important cause of the large and growing U.S. trade deficit, and will further injure domestic industries and workers. For them, many of the arguments for free trade are just globaloney.

Japan, a member of the proposed TPP deal, is by its own admission a currency manipulator. Its leaders want a relatively low exchange rate for its currency, the yen, because it makes their goods and services cheaper in the United States. Automakers and other manufacturers believe such currency manipulation constrains sales of American products.

Here is a simple example: The Japanese central bank prints more yen and then buys assets denominated in dollars. This increases demand for the dollar, which increases its value while at the same time driving down the value of the yen. By manipulating their currency Japan is subsidizing its exports by making them cheaper and placing a hidden tariff on imports. The U.S.-Japan goods trade deficit reached $78.3 billion in 2013, costing U.S. workers thousands of jobs. The U.S. is acquiescing in outsourcing the value of the dollar to a trading partner who wants to win jobs and gain higher incomes for their people.

On the other hand, there are those who see the trade deficit in a positive light as it provides foreigners with dollars that they recycle by bingeing on United States Treasury debt, thus financing federal budget deficits.

Opponents of the current deal complain that, among other things, it does not address currency manipulation, which subsidizes Japan’s exports and taxes American ones. A bipartisan amendment that would have cracked down on countries that manipulate their currencies was offered by Senator Rob Portman, R-Ohio, and Senator Debbie Stabenow, D-Michigan, during the Senate consideration of the TPP, but it failed by a narrow 51-48 vote.

The Obama administration has done a good job of sealing itself off from any discordant feedback, threatening to veto the bill if the amendment passed.

Wages for American workers have been stagnant for decades and the U.S. economy has kept going by substituting growth in consumer debt for growth in consumer income.

The essential unanswered question about TPP is whether the aggregate benefits of lower prices to American consumers that leave them allegedly with more discretionary income offset job losses for the American worker and displacement of American industries.

It’s easy to be wrong about the answer to this question when the costs of being wrong are paid by others – namely the American worker.

originally published: June 13,2015


Laboring over Obama’s trade deal

For those who came in late, President Obama has forged a rare alliance with Senate Majority Leader Mitch McConnell of Kentucky and congressional Republicans to push the Trans-Pacific Partnership (TPP), a proposed regional free trade agreement among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The deal has been developed in secret so the American public is on the outside looking in. Based on what has been leaked, there are apparently 29 chapters in the TPP, but only five deal with traditional trade issues such as tariffs. The rest are about intellectual property, financial regulations, labor laws, and rules for health, safety and the environment.

Sen. McConnell said that: “By passing this legislation we can show we’re serious about advancing new opportunities for bigger American paychecks, better jobs, and a strong economy.” But in fact it is the TPP’ s labor law provisions that may be particularly problematic for American workers and, by extension, our country’s economy.

While many people believe free trade is generally a fine idea, some have escaped its gravitational pull. Opposition to this deal comes primarily from the president’s own party, many of whom contend that “better American jobs” is a fatigued phrase with a truth quotient somewhere near zero.

Nothing will blind them to the fact that the United States has run consistently high trade deficits for more than three decades, ranging from of $35.1 billion in 1983 to $505.5 billion in 2014. The cumulative deficit over this period is in the trillions, even as American wages have been flat or declining. This is the trading profile of an 18th century British colony.

They argue that growing trade deficits have been a drag on economic growth; that putting the United States in direct competition with low-wage countries has slowed job creation and put downward pressure on wages.

According to the office of the United States Trade Representative, “The president has always made clear that he will only support trade agreements that include fully enforceable labor standards, which we are pursuing in TPP”.

But Massachusetts Sen. Elizabeth Warren is among those who believe this is utter nonsense. She has forcefully raised the question of whether what is proposed in the agreement is in fact achievable. Her IS­ page report, “Broken Promises,” reviews labor standards over two decades of free trade agreements and documents in detail the use of child and forced labor, intimidation of union activists, restrictions on free speech and assembly, discrimination against women and other deplorable working conditions. The report plainly states that: “The United States does not enforce the labor protections in its trade agreements.”

A 2014 Government Accounting Office report also detailed the failure to enforce labor provisions in free trade agreements. Based on these reports, assurances that it will be different this time are hardly persuasive.

This reality cannot be ignored. Labor abuses are not waiting to be found, like eggs at an Easter egg hunt. Who is going to police labor standards in other TPP countries, especially those with weak judicial systems? Are the “best and the brightest” in the federal government going to ensure workplace compliance in foreign countries when they can’t even control the number of undocumented immigrants who overstay their visas here in the United States?

The TPP’s Investor-State Dispute Settlement mechanism enables foreign corporations to sue governments for lost profits using special tribunals of private attorneys in secretive proceedings, yet workers don’t have a comparable tool to address labor standard violations.

Free trade only works when the exchange is an equal one, when all the players operate under the same rules, including labor policies. If they don’t, American workers face unfair competition, and domestic jobs and industries are sacrificed to trading partners with pools of exploitable labor.

originally published: June 6, 2015

The more we learn about Obama’s trade deal, the worse it looks

The Trans-Pacific Partnership (TPP) is a mega free-trade pact that would link 11 Asian countries and the Americas. The member countries have nearly 800 million people, an annual gross domestic product of about $28 trillion and they account for 40 percent of the global economy and one-third of world trade.

That’s the good news. But there are plenty of things about this deal that should give us pause.

TPP has been negotiated in secret since 2009. According to Vermont Sen. Bernie Sanders, the minimum wage in Vietnam- one of the parties to the deal- is 56 cents per hour.

TPP is the economic cornerstone of President Obama’s pivot to Asia. China is not part of the deal. Indeed, the pact is seen as a way to bind Pacific trading partners closer to the United States and counter China’s growing power in Asia.

Prospects for approval advanced last week with the Senate’s 62-37 vote to give this president and his successor so-called trade promotion authority, also known as “fast-track.” This authorizes the president to negotiate the trade agreement and bring it back to Congress for an up or down vote – no amendments or filibuster allowed. And you thought legislative power was vested in Congress. This approach is taken because if Congress were to amend the trade package, it would have to go back to the 11 other countries for approval.

The battle now shifts to the House of Representatives, where a tougher fight is expected. The president’s effort to pursue TPP has split his own party due to labor’s concerns that previous trade deals have cost jobs and depressed wages for American workers competing with low-wage countries.

The draft TPP document is under wraps. If lawmakers want to read it, they and a staff member can go to a security office in the Capitol as long as the staff member meets certain security requirements, but they cannot discuss the details of what they read.

Industry executives and their lobbyists, on the other hand, have had direct access to the text, advising administration negotiators on terms and provisions while the public is excluded from reviewing the draft. It’s not exactly a process that rewards collaborative behavior and promotes transparency.

What the public has learned about the TPP has come from documents publicized by Wikileaks. About 18 months ago, Wikileaks published a draft of the “intellectual property” chapter of the text that would likely lead to higher drug prices because the pharmaceutical industry gets stronger patent protections, which would delay cheaper generic versions of drugs.

Even better, an “investor-state dispute settlement” (ISDS) provision would allow multinational corporations to sue countries over laws that might reduce the corporations’ “expected future profits.” Foreign investors can also sue if a regulation gets in the way of their ability to profit from an investment. Picture Phillip Morris suing Australia for passing laws to discourage children from smoking.

And the court ISDS creates to hear such a suit consists of three private-sector attorneys serving as judges.

Sen. Elizabeth Warren, D-Mass., is especially concerned that allowing foreign companies to sue national governments in special tribunals would infringe upon American sovereignty and could unravel financial sector regulations. The president played junkyard dog on her in an interview with Yahoo Politics when he said: “Elizabeth is, you know, a politician like everybody else. She’s got a voice that she wants to get out there. And I understand that. And on most issues, she and I deeply agree. On this one, though, her arguments don’t stand the test of fact and scrutiny.”

The more you learn about the TPP, the worse it looks. Is it any wonder that the draft has been kept under lock and key?

Perhaps the only thing more improbable than the Seattle Seahawks passing on second and goal from the one-yard line in the Super Bowl is the notion that the American public benefits from the lack of transparency surrounding the Trans-Pacific Partnership.

originally published: May 30, 2015