What Next for the Trans-Pacific Partnership?

There are few moments in history when policymakers and legislators have the opportunity to shape the future of the economic system for the better. The Trans-Pacific Partnership (TPP) has the potential to be cited as one of these moments. The deal, which was finalized in early October, will bring together more than 40 percent of the global economy and 12 Pacific-Rim countries. In doing so, it will not only create a gold standard for commerce, it will become a driving force in the future of the global economy.

The finalized TPP deal currently is one of the most comprehensive trade agreements in history and the result of a collaborative process between all 12 nations. The agreement eliminates tariffs and duplicative regulations that hinder trade. In addition, it establishes mutual standards for everything from labor laws and environmental standards, to the manner in which beef is produced. By cutting through red tape, the TPP will make it easier for businesses to break into the international market. These benefits will be felt by all businesses, from large multinational corporations to small and medium-sized businesses. The agreement devotes an entire chapter to ensuring that the latter group will also share in the benefits of the new trade environment.

With the finalized deal in the hands of the 12 member nations, many hurdles remain before the TPP takes effect. Each member must ratify the deal through their internal political processes. In this, the United States will be the crucial player. A politically divided U.S. Congress must ratify the deal before the American presidential race goes into full swing. As time passes, the TPP will become increasingly politicized and harder to ratify. This could imperil the deal as a whole. Failure of the U.S. Congress to ratify the deal might dissuade other nations from ratifying it. Time is of the essence.

The TPP is projected to produce an economic windfall for its members and the larger global economy. The Peterson Institute recently estimated that the global impact of the deal will generate almost $300 billion per year by 2025. In the United States, this will mean an additional $123.5 billion a year in exports by 2025. In Vietnam, the deal could push the country’s growth to as high as 11 percent in the next decade. At a time when the global economy is showing signs of slowing, the TPP will be an effective way for its 12 members to maintain an economic edge.

Inclusive Growth

It is important to note that the economic growth spurred by the TPP will be inclusive. Many of the opponents of TPP claim that it is a deal that only benefits large corporations, to the detriment of workers. This argument is refuted by a body of evidence showing the impact of trade on workers in an economy. Historically, there is a direct correlation between high paying jobs and exports. For example, from 1993 to 2008, 40 percent of job growth in the U.S. was related to the growth of exports. In 2014, every billion dollars in exports from the U.S. generated nearly 5,800 jobs. In the U.S., the jobs created by exports are often higher paying, supporting either skilled laborers or those in services industries. Americans employed by companies that import and export make an average of 15-20 percent more than those that engage solely with the domestic market.

Looking outside of the U.S., much of the incredible growth seen in the Asia-Pacific over the last fifty years can be attributed to trade. A 2012 report produced by the OECD shows trade liberalization was a key factor in boosting regional GDP and creating higher paying jobs throughout Asia. By investing in industrial plants that could supply the world with inexpensive products, Asia became the most important economic region in the world. Australia is a prominent example of the importance of trade to the future of the region’s job growth. Australia has a diverse set of exports, including services, that have led it to have one of the highest per capita GDPs in the world. A recent PricewaterhouseCoopers (PwC) report concluded that “Australia’s services sector is positioned to underpin future job growth in Australia by increasing its engagement in international trade…”

By tapping into the human capital present in each nation, the TPP is expected to raise income levels across the board for member nations. As the Copenhagen Consensus has noted, fostering international trade is one of the most cost-effective ways to spur inclusive economic growth in developing economies. For a low price, trade deals allow governments to stimulate economic growth.

Vietnam is an archetypal example of how this can happen. In the aftermath of the decades-long Vietnam War, mismanagement of the economy left the majority of the country in abject poverty, with per capita income below $100. Through drastic economic reforms, the government gradually decentralized the economy and opened Vietnam up to international business. Per capita income of the country rose to $1,960 in 2013 and the percentage of people living in poverty dropped below 10 percent. Vietnamese exports played an integral part in this remarkable economic turnaround. In 1986, exports accounted for only 7 percent of Vietnam’s GDP. In 2013, that number had risen to a remarkable 80 percent.

Beyond the economic impacts of the deal, the TPP will create a gold standard for labor and environmental codes. In ratifying the deal, each nation will be committing to enforceable standards for both of these issues. As U.S. Trade Representative Michael Froman has noted, the TPP will be the largest expansion of fully enforceable labor rights in history. All nations will be required to adhere to the International Labor Organization’s basic principles on workers’ rights. The deal will protect the right of laborers to form unions, to bargain collectively, and will prohibit child labor. It will also enforce a minimum wage and safe workplace conditions. From an environmental perspective, the TPP upgrades NAFTA’s environmental regulations by encouraging conservation and preventing illegal practices that target wildlife. Additionally, it curbs shipping pollution and the amount of ozone depleting substances used by companies.

Steps Towards Ratification

Domestic politics in the 12 member nations of the TPP will decide the future of the deal. All politics is local and this is especially true when citizens feel that their livelihoods will be affected by a policy like the TPP. To finalize the TPP’s ratification, leaders from each nation must present the facts about how the TPP will benefit their economies and people.

The country that will face the greatest challenge in this process will be the United States. As the presidential election grows closer, the highly partisan climate in Washington will become more heated and ratification of the TPP will become less likely. As they have already begun to do, presidential candidates will politicize TPP to gain votes. Sensing a drawn out political fight, Congress will have little appetite to tackle the controversial issue. In addition, existing opponents of the deal will capitalize on the presidential election to derail the deal.

The TPP is an issue that divides Democrats. This was seen most prominently during the passage of the Trade Promotion, or “Fast-track,” authority earlier this year. The Fast Track authority gives the president power to send trade deals to Congress for a simple up or down vote. By avoiding a politicized amendment process that can pick apart a deal, the president is much more likely to finalize any trade deal. During this year’s passage of the bill, left-leaning democrats and powerful lobbying groups such as the AFL-CIO characterized the Fast Track as detrimental to workers. Though U.S. President Barack Obama was able to get the bill passed, he did so with far fewer Democrats than he had hoped. In the Democratic presidential race, the TPP has already become a central issue. As Bernie Sanders gained ground in the polls, he argued vehemently against the TPP. Hillary Clinton has also recently reevaluated her position on the TPP.

Though congressional Republicans historically advocate the expansion of trade, divisions within the Republican Party have called their support into question. If Paul Ryan becomes the next speaker of the House of Representatives, his first order of business will be to reign in the ultra-conservative Freedom Caucus. Though Ryan supports the TPP, getting the House in order will be his first priority.

In the Republican Presidential race, front-runner Donald Trump recently called the TPP “terrible” and came out strongly opposed to it. Trump continues to rise in national polls and, in large part, has set the agenda of issues for Republican presidential candidates. As with the question of immigration, he could drastically steer a policy question towards his own opinions, leading other candidates to follow in his shadow.

As the TPP itself approaches a vote, there is no doubt that the AFL-CIO and other TPP opponents will use the volatile political environment to ramp up their lobbying efforts against the deal. For the TPP to have a viable chance, it must head off the fever pitch of the presidential election, where sound bites – not policy arguments – will determine the fate of the deal. By May 1, as the party primaries end and the main campaign begins, the deal must be ratified.

A recent Pew Poll showed that the other members of the TPP have greater levels of public support for the agreement than the United States does; however, it is important that such goodwill does not dissipate because of U.S. intransigence. The longer the U.S. delays in passing the deal the more likely it is for opposition to emerge in other countries.

The most likely place for this to occur is Canada. In Canada’s recent election, conservative Prime Minister Stephen Harper was unseated by the Liberal Party’s Justin Trudeau. While Trudeau stated that he is in favor of TPP, he has yet to strongly commit to this position publically. Though the details of the TPP have allayed the influential dairy industry in Canada, the deal nonetheless remains controversial. The New Democratic Party, which won more than 40 seats in the Canadian parliament, made opposition to the TPP one of its core issues. With the deal in the balance, the centrist Trudeau could reverse his position. A U.S. delay in ratifying the deal may prompt such a move.

Japan, Australia, and Mexico are other crucial players in the agreement. To lose them would be a huge blow to the power and importance of the agreement. After the U.S., Japan is the second largest economy in the TPP. Similarly, Australia and Mexico are major economic players in the deal. While the TPP remains popular among the leaders and populations of each of these nations, U.S. sluggishness and a Canadian departure from the deal could change that reality. If the opposition to the TPP gains global traction, an exodus from the deal could occur.

Reasons for Optimism

Despite the race against time, there are more reasons to be optimistic about the future of the trade deal than pessimistic. On a larger scale, Americans continue to see trade as an opportunity for economic growth. According to a Gallup poll in March, 58 percent of Americans agree that trade is an opportunity, rather than a threat. In addition, only 16 percent of Americans think that removing the U.S. from the TPP will effectively improve the American economy. These statistics are not surprising. Americans consistently excel when they compete on the global market, contributing to the nation’s economic prosperity.

The question remains whether this support can translate into a political mandate. Congressmen must take the case for the TPP to their constituents. Returning to the adage that all politics is local, congressmen must be able to show the enormous benefit of the TPP for their individual states. With hard facts on how TPP will provide jobs and tax revenues for their citizens, congressman can cut through the rhetoric presented by the opponents of the deal to build support in their communities.

The president can help these congressmen. The TPP remains a key pillar of Obama’s “rebalance” to Asia and could be one of his greatest foreign policy achievements. Obama has already begun to make his case to the American people. He rightly argues that the U.S. must look abroad when thinking about the future of the economy. Ninety-five percent of the world’s consumers live outside of the U.S. and Americans should be eager to export their products to such a large group.

The Fast Track authority, discussed above, is another reason to be optimistic about the fate of the TPP. Fast Track will eliminate political haggling and pork barrel spending from the ratification of the deal, making it more palatable to the American people and decreasing the amount of time required to pass it. Because of Fast Track, the deal cannot be altered to cater to a given congressman’s personal interests. It will be presented to Congress and the American people and argued on its own merits. Ultimately, the TPP is a bipartisan issue. Increasing the number of high-paying jobs is something that everyone can agree on.

TPP and the Future of the Asia-Pacific

With its ratification, the TPP has the huge potential to expand beyond the original 12 nations in the agreement. By unifying such a large segment of the Asia-Pacific’s economy, the deal will create a huge incentive for other nations to follow suit. When global business leaders begin to export their products to foreign markets they seek to have the greatest reach possible. Regulatory differences from country to country greatly reduce their ability to do this, forcing them to alter their products for each individual market and driving up production costs. The TPP will eliminate many of these complications. By adhering to the TPP standards, farmers in Wisconsin will be able to able to export the same beef to Peru as they would to Malaysia. Textile factories in Mexico will be able to ship to Brunei or Australia following the same regulations they’d adhere to in shipping to the U.S. or Canada. This is a situation that every economically focused nation would want for its businesses.

Already, six nations not included in the initial group have expressed interest in joining the TPP. Among these are South Korea, Indonesia, and Taiwan – nations that will play an important role in the future of the Asia-Pacific economy. Significantly, China has also kept the door open. The head of the Beijing-based Asian Infrastructure and Investment Bank recently stated that China is still open to becoming a member of the TPP. The reasons for this are easy to understand: China’s economy is driven by exports. Greater access to 12 Asia-Pacific markets is something that could help them overcomes their recent economic slowdown. Moreover, China’s leadership possesses pragmatic economic instincts. They see the TPP for what it is, a chance to encourage growth for their country and the region.

With the inclusion of more and more TPP members, it is likely that the TPP will become the de-facto commercial standard for the larger Asia-Pacific. This will not be decided by governments, but by individuals. Business owners in non-TPP nations will see the incentive in adhering to the TPP’s standards. Again, when global businesses begin to think about exporting products, they seek the greatest reach. By adhering to the TPP, businesses will gain greater access to a host of global markets, increasing the reward for taking a product to the export market. A manufacturer in India will see the boost that the TPP can provide to his global market share and set the TPP’s standards in his factories without them necessarily being mandated by the Indian government.

By interlinking so many economies into a trade deal of economic significance, the deal will also stand as a bulwark for regional security. With economies interconnected through trade, conflict will simply become too expensive. Such an argument was famously (and mistakenly) made in advance of both World War I and World War II, but the world has changed dramatically in the last 70 years. Revolutions in technology have made shipping less expensive, inextricably linking national economies together on a scale never before seen. Take China and the U.S., for example. As of 2015, China accounts for more than 15 percent of all U.S. trade. This is not a relationship that either nation is likely to suddenly or easily forfeit. Doing so would hurt workers and consumers and cause a global financial crisis. With the TPP in place, more nations in the Asia-Pacific will experience this level of interdependence, making conflict prohibitive.

Right now, the 12 members of the agreement sit in front of a decision that will decide the future of their own nations and the economy of the region. If they are able to rise above domestic politics and ratify the agreement, it is not an exaggeration to say that the nature of global trade will shift for the better.