Professor’s take: The Trans-Pacific Partnership Agreement would’ve been a mistake

Joseph Pelzman is a professor of economics, international affairs and law.

The U.S. economy, like many other developed economies, has experienced widening disparity in incomes that are attributed to the negative externalities associated with globalization. The results of the recent presidential election in the U.S. are proof of the backlash against the negative dislocation of a large segment of the U.S. workforce whose interests were not relevant to the political elite in Washington.

While global economic integration in the post World War II period reduced tariffs and eliminated most non-tariff barriers in textiles and apparel, but not in agriculture, resulting in increased trade and economic growth, it exposed U.S. firms and workers to greater competition from lower-cost and more efficient producers in certain sectors. Increasingly, it also revealed the stark differences between U.S. competition rules and those found in both other developed and developing economies. In these latter countries, economic competitiveness is more akin to “State Supervised Capitalism,” with a strong interventionist state sector dictating, subsidizing and creating “winners” in contrast to the laissez faire U.S. competitiveness model where we are more comfortable with creative destruction of our manufacturing sector. State-owned enterprises (SOEs) and other firms that receive government support and protection are at an enormous advantage vis a vis U.S. firms who still operate on the principal of a competitive market with limited government intervention.

The Trans-Pacific Partnership Agreement (TPP) represented an attempt to deal with some of these issues by the Obama White House. Unfortunately, the administration did not solve the problem of competition with SOE’s nor with currency inconvertibility of our trading partners. Pulling out of this quasi-multilateral agreement was an excellent idea. Most of the countries involved in the TPP currently have bilateral agreements with the U.S., so there will be no pushback affecting U.S. consumers. Renegotiating the existing bilateral agreements and initiating new bilateral agreements with the other TPP members would be the welfare augmenting approach designed to solve the disadvantages of competing with SOEs and with those that maintain non-convertible currencies. If the Trump administration can negotiate away these competitive disadvantages, then they can revisit a multilateral trade agreement with Asia – including the PRC, which has the largest footprint in Asia and with whom the U.S. has a vested interest to integrate in a trading world with revised competition rules. The clear emphasis in today’s trading environment must be on addressing the existing discrepancies in competition rules and currency inconvertibility in most of our trading partners. A trade agreement that does not address these issues is not worth the paper it is written on.

Joseph Pelzman has recently published “Spillover Effects of China Going Global, London: World Scientific Press.”

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