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Beyond the Beltway

Is TPP about jobs – or China?

John Kerry talks trade with workers at Boeing POOL New/ Reuters

Washington is in the midst of a heated debate over President Obama’s proposed Trans Pacific Partnership (TPP) Agreement.

It certainly has created some unorthodox political bedfellows.

The president is widely supported in this initiative by Republicans. He is opposed by large swathes of his own party. Senator Elizabeth Warren symbolizes this opposition, although she is hardly alone among Democrats in voicing her discontent. Still, focusing on her gives credence to the claim it is the “liberal” wing in the party that is causing this almighty row.

Yet focusing exclusively on the debate about the possible domestic economic effects of the proposed TPP Agreement misses a key dimension – the TPP’s foreign policy implications and the future role of the US in Asia.

The really hard choice may be between the economic security of many Americans and what many regard as the country’s future national security – which has a lot to do with China.

But before we look forward, let’s first look back.

Globalization from an American perspective

The foundation of the domestic disagreement is familiar to those who have debated the virtues and vices of free trade for at least the last four decades.

As the Cold War drew to a close, America was the world’s largest and most vocal proponent of globalization.

Globalization meant different things to different people. But the heart of the economic process included free trade in both goods and services.

This made sense to most Americans, accustomed as they were to the enormous power and prosperity that America’s largest firms had always generated. They still believed in the adage that “what’s good for General Motors is good for America.” America’s industrial prowess, they thought, was the envy of the world.

But this image proved an illusion. Many who lived in the country that had been globalization’s most vocal proponent became its primary victims as American industry “hollowed out.” Industrial jobs – from cars to shoes – began to go abroad.

Things had in fact begun to fall apart in the early 1980s, as Japanese producers invaded America’s shores – closing factories in steel, autos and machine tools.

But most Americans regarded this as a temporary setback, even as American firms began to offshore their production to save on labor costs. Free trade was good, they argued, but it had to come with “fair trade” – an even playing field for American firms exporting abroad. Still, the belief in free trade as sacrosanct had begun to be chipped away.

The shadow of NAFTA

In the 1992 presidential election, Ross Perot ran against George H Bush and Bill Clinton as a third party candidate. The primary issue of his platform was that the proposed NAFTA treaty with Mexico and Canada would be ruinous for American workers.

His most memorable adage, expressed during the second presidential debate, was that there was a “giant sucking sound” caused by the rush of manufacturing jobs to Mexico if NAFTA was enacted.

Perot garnered 19% of the popular vote in that election.

In many ways Perot’s comment was prescient, although NAFTA just sustained the pattern of the loss of industrial jobs rather than initiating it.

One recent report, nonetheless, concluded that NAFTA cost the US economy a million jobs.

I lived in Cortland, NY in the years leading up to the closure of the Smith Corona typewriter plant and its relocation to Mexico in anticipation of NAFTA. The economic effect on that small town was devastating.

Later I moved to Pittsburgh, whose industrial base was destroyed in the decade before NAFTA. The city that was once the world’s “steel capital” had no working large-scale plants by the time NAFTA arrived.

This image of the debilitating effects of NAFTA on America’s industrial heartland is the one that dominates the current debate.

The proposed twelve-member pact of the TPP consists of countries from as far apart as North and South East Asia, Oceana and North and Latin America. But some, like Vietnam, are low cost producers. And Congressional Democrats fear that the major effects of this new free trade zone will be job losses and multinational corporations even freer of any limits imposed by domestic regulators.

The focus on free trade and open markets, of course, accounts for the Republicans support, although they remain ambivalent about any legislation that may give this president a victory or worse, a legacy.

Understandably, this debate has received a lot of coverage in the press. After all, it has all the key elements of a great story. It has Shakespearean irony as the president’s party turns against him and his customary allies line up to disparage him (and he them) rather publically. It has a whiff of intrigue, as the terms of the negotiated agreement remains secretive at this point.

‘It’s National Security, stupid’

It was in the heat of that 1992 presidential campaign, that Bill Clinton’s strategist James Carville coined the phrase “it’s the economy stupid.”

Democrats have held that as an article of faith ever since. But is that what the TPP is really about?

Much of the media coverage has understated a key point: that a major purpose of the pact is concerned with national security, not simply economic gains.

Journalist Kevin Granville was exceptional when he pointed out in the New York Times recently that,

“The pact is a major component of President Obama’s ‘pivot’ to Asia. It is seen as a way to bind Pacific trading partners closer to the United States while raising a challenge to Asia’s rising power, China, which has pointedly been excluded from the deal, at least for now.”

Granville’s comment must be put in some context. The effects of China’s meteoric rise as a global economic powerhouse has been magnified in Asia.

Most of America’s consumer goods come from China because it is the place where many final products from across Asia are assembled and dispatched to the US. So our biggest trade deficit is with China. But that is in part because it has displaced our trade gap with other countries – like Japan and South Korea. In effect, we have swapped one deficit for another.

Christmas decorations made in China. Reuters/China Daily

Why’s that so important? Well, China has become highly integrated into Asia’s economy. It now takes in much of Asia’s semi-finished products, assembles them, and sends them on to the US.

As a result, other Asian countries are now dependent on low cost Chinese labor as well as the richer Chinese consumers who buy their products. Couple this with China’s checkbook diplomacy in aid, trade and finance, and it has become even more influential as a result.

The Chinese have leveraged this influence in Asia in many ways. One has been to confront many of its neighbors about sovereignty over numerous islands stretching across the East and South China Seas.

Another has been its endorsement of The Free Trade Area of the Asian Pacific, implicitly an alternative to the TPP. But this one includes China.

The Obama administration has been vigorous in blocking that initiative because it would allow China to get preferential access to some of its largest trading partners.

America’s military presence has grown as part of its re-balancing, with agreements to open, sustain or enlarge military bases stretching across the Pacific from Australia to Japan.

But America’s prominence as an economic power in Asia has clearly been slipping.

This decline is symbolized most recently by the formation of the new Asian Infrastructure Investment Bank, backed by Chinese money, over American objections. The decision by so many of America’s closest allies essentially to “defect” was a stinging rebuke that I wrote about in a prior column.

Many now think of China as a competitor or challenger rather than an economic partner.

So for the Obama administration, the TPP is an opportunity to tie a variety of traditional allies economically closer to the US while keeping the Chinese out.

More broadly, it is a way of ensuring that China does not become economically dominant over all of the Pacific, if not of Asia.

Administration officials are understandably quiet on this point. Rattling sabers by making national security the focal point of the TPP is not the kind of language the president likes to employ.

But whether the critics of China are right or wrong, it might, ultimately, be just the kind of language that would push this controversial legislation through in the face of a growing domestic battle.

For more Conversation coverage of the debate over trade policy in the US:

Fast Track overcomes key hurdle but obstacles remain as trade deal hangs in balance

Sen Warren is right: fast-track could help roll back Dodd-Frank

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