Oct 19, 2016 - 9:00am

The Case for the TPP: Responding to the Critics

Senior Vice President for International Policy

What is the Trans-Pacific Partnership (TPP) all about? With debate over this 12-nation trade agreement now underway, the U.S. Chamber is publishing this series of posts making the case for the TPP’s approval. This installment responds to several of the most common criticisms of the agreement.

Like other supporters of the TPP, the Chamber has argued at length and in detail that the agreement will spur economic growth and job creation across the United States—benefitting workers, farmers, and businesses of all sizes.

But the agreement has its opponents, and they haven’t been shy. What are their concerns, and do they have merit?

“The TPP is Too Big”

Some critics malign the length of the “gargantuan” TPP, which is necessarily a long and complex agreement because it covers trade between 12 countries representing about 40% of the world economy.

But even a cursory review reveals that 70% of the considerable length of the TPP text consists entirely of tax cuts: that is, country-by-country schedules for the elimination of tariffs. This translates into approximately 18,000 tax cuts on U.S. goods sold abroad and 6,000 tax cuts on goods imported into the United States from other TPP nations.

This is why anti-tax advocate Grover Norquist, president of Americans for Tax Reform, has praised the TPP. “This is both sound foreign policy” and “great economic policy,” Norquist recently told National Journal:

It’s 4,000 pages of tax cuts. Tariffs … tariffs suck. Tariffs kill jobs. Tariffs slow the economy. This is good. It’s not everything you wanted—no. But it’s progress towards almost everything you wanted.”

So, that may be a lot of paper, but from the perspective of those seeking to tear down the tariff walls that separate American workers, farmers and companies from potential customers abroad, it’s for a great cause. (Kevin Williamson of National Review recently wrote a piece on Why We Need Big, Ugly Trade Treaties.)

“The TPP Won’t Stop Foreign Currency Manipulation”

Some critics complain the TPP “fails to meaningfully address harmful foreign currency manipulation.” The Chamber strongly agrees the United States should continue to press economies to adopt market-determined exchange rate systems that reflect economic fundamentals, and there are several fora for such discussions.

In recent years, the G-7 economies have affirmed that they will not target exchange rates to achieve domestic economic objectives. G-20 members have made similar commitments to avoid persistent exchange rate misalignments and refrain from competitive devaluations.

This seems to be working. William R. Cline, a senior fellow with the Peterson Institute for International Economics, observed in May 2016 that the Japanese yen has “no misalignment” in terms of its valuation against other currencies. Overall, the forces impacting the dollar’s exchange rate appear to be “driven by divergent macroeconomic policies and market forces, rather than the pattern of the mid-2000s associated with exchange rate intervention” by foreign central banks, Cline noted in November 2015.

Here’s how U.S. Chamber President and CEO Thomas J. Donohue addressed this issue before the Senate Finance Committee last year:

The notion that you can use trade policy tools to address monetary policy challenges causes concern in many quarters. Here’s one example: It is not in the U.S. interest to enter into an international agreement that would handcuff U.S. monetary policy and limit the flexibility of the Federal Reserve to respond to in an economic crisis.

“The TPP Cedes Constitutional Authority and Sovereignty”

Some critics claim that “Congress will have ceded its constitutional authority to negotiate trade deals” once the TPP is implemented and that “Congress would be powerless to stop” other countries from acceding to the TPP once it has entered into force.

This is nonsense: Congress would of course vote on any other country joining the TPP in keeping with the legislature’s constitutional authority over international trade.

It’s relevant to consider what the Trade Promotion Authority (TPA) law approved by Congress in June 2015 says. Given that the TPP was signed under this authority, it’s important to recall how — in the words of Senate Finance Committee Chairman Orrin Hatch (R-Utah) — the TPA statute:

  • “Provides that any provision of a trade agreement inconsistent with U.S. federal or State law will have no effect.
  • Confirms that U.S. federal and State law prevail in the event of a conflict with a trade agreement.
  • Affirms that a trade agreement cannot prevent the United States or the States from changing law in the future.
  • Confirms that the Administration cannot unilaterally change U.S. law.”

As Claude Barfield, resident scholar at the American Enterprise Institute, has written: “U.S. sovereignty is closely guarded and reinforced through specific clauses [in the TPA law] that nullify any section of an agreement that is inconsistent with U.S. law.”

“The TPP Will Add to Trade Deficits”

Some critics contend that trade agreements lead to larger trade deficits. This argument has been pushed vigorously by anti-trade activists, and it could not be more wrong, as we’ve explained at length. (So has the Wall Street Journal editorial page.)

In fact, for those worried about the U.S. trade deficit, trade agreements are clearly part of the solution — not the problem.

With regard to manufactured goods, the United States has recorded a cumulative trade surplus with its trade agreement partner countries of more than $280 billion over the past eight years (2008-2015), according to the U.S. Department of Commerce Trade Stats Express site. The United States has significant trade surpluses in services and agricultural products.

So where does this misinformation come from? Some activists use a modified set of trade statistics to charge that the United States has a trade deficit with our trade agreement partners. These modified statistics distort the official data by subtracting goods dubbed “re-exports.” These are goods imported into the United States and then exported again without modification.

The problem is that they still count these goods as imports when they enter the United States. This sleight of hand is intended to inflate the overall trade deficit and hide the fact that the United States actually has a trade surplus with our 20 trade agreement partners as a group. This twisting of data would merit an “F” in algebra class.

“The ITC Report Says the TPP’s Benefits Will Be Small”

In May, the U.S. International Trade Commission (USITC) issued a report on the expected economic impact of the Trans-Pacific Partnership (TPP), estimating it will boost U.S. annual real income by $57.3 billion by 2032.

The USITC is charged by Congress with preparing “a report assessing the likely impact of the agreement on the United States economy as a whole and on specific industry sectors” in advance of congressional consideration of a new trade agreement.

Interestingly, a more comprehensive analysis by the Peterson Institute for International Economics issued in January estimated the TPP will have benefits more than twice as large, increasing annual real incomes in the United States by $131 billion and boosting annual exports by $357 billion in the same time period.

What accounts for the difference? The ITC report shows smaller benefits because it looked mostly at tariff elimination and made a more limited attempt to quantify the benefits of the TPP’s provisions eliminating non-tariff barriers, protecting U.S. intellectual property, and unleashing the digital economy.

As U.S. Trade Representative Michael Froman observes: “When the full impact of TPP’s intellectual property rights protections, services sector benefits, disciplines on state owned enterprises, reduction of non-tariff barriers, and many provisions on digital trade are included, other studies, including from the non-partisan Peterson Institute, have found that the benefits are even higher.”

The conservative tack of the ITC report is no surprise. Its studies have historically tended to underestimate the benefits of new trade agreements such as their boost to U.S. exports of goods and services by factors ranging from four to ten.

Adding to the conversation, the World Bank in January released its own report projecting the potential economic impact of the TPP. Like the Peterson scholars, the World Bank researchers estimated the TPP would boost U.S. incomes by more than $100 billion.

In any event, it is bizarre to hear anti-trade voices from organized labor belittling the “small” expected benefits of the TPP. In fact, it’s difficult to name another public policy initiative that is largely budget neutral and expected to bring such large benefits to the U.S. economy. (The Chamber put this in context in a piece issued in in January.)

“The TPP Will Undermine Regulations Protecting Health, Safety and the Environment”

On the contrary, the TPP text explicitly protects and supports “regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment.”

It further states that such actions shall not be viewed as “indirect expropriations” subject to arbitration under the agreement’s Investor-State Dispute Settlement (ISDS) provisions.

Critics of the TPP describe ISDS as something novel and exotic when in fact arbitrators are charged with upholding the same kind of fundamental rule of law protections that appear in the U.S. Constitution.

ISDS has been included in approximately 3,000 investment treaties and trade agreements over the past five decades. These neutral arbitrators have no power to overturn laws or regulations; they can only order compensation.

And the kicker? Of the grand total of 17 disputes that have been brought against the United States over the past 50 years, the United States has won every time.

“Trade Agreements are ‘Anti-Dentite’”

OK, this charge is about 10 years old, but we’re half hoping it will resurface at any moment.

The concern, apparently, is that trade agreements will weaken dental licensing or qualification standards in U.S. states because of provisions in the agreement calling on countries to make those criteria objective and transparent. Of course, this charge is baseless, but it’s a great excuse to watch this old Seinfeld clip.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.