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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 looks at its strategic rationale.
Like other supporters of the TPP, the U.S. Chamber has often pointed out that the agreement would cut 18,000 taxes on U.S. exports, stimulating economic growth and job creation. One major study estimates it would boost U.S. exports by $357 billion.
Then there’s the argument, advanced by the Secretary of Defense, that the TPP is as important to U.S. interests as a new aircraft carrier.
The chief rationale for the TPP is economic, of course. The TPP will sweep away the tariffs and other trade barriers that too often deny a level playing field for U.S. exports. It will unleash the digital economy, strengthen our innovative and creative industries, and end the favoritism afforded to state enterprises.
But the TPP is also critical to America’s strategic interests in the Asia-Pacific region and worldwide.The TPP will sweep away trade barriers that disproportionately hit America’s small businesses, 300,000 of which are exporters today. It could be a game changer for American workers, ranchers, and companies.
The TPP is the latest chapter in U.S. leadership on trade, but it is far from the first. In the aftermath of the Second World War, the U.S. took the lead in framing a global, rules-based trading system based on the principles of reciprocity, non-discrimination, and openness. Successive rounds of tariff-cutting negotiations over half a century helped increase world trade from $58 billion in 1948 to $23 trillion today.
No country benefitted more from this expansion of trade than the U.S. Overall, trade today supports 41 million U.S. jobs and has raised the income of the average American household by $13,600 per year.
America’s Greatest Generation established this post-war trading order because they knew the costs of protectionism. The disastrous Smoot-Hawley Tariff Act of 1930 triggered a 66% decline in world trade between 1929 and 1934. This contributed powerfully to the Great Depression, which set the stage for war.
They vowed not to let history repeat itself. And for 70 years, trade agreements have fostered economic growth and good jobs, but they have also strengthened ties of peace, cooperation, and friendship between nations. The 40-fold increase in world trade over the past seven decades helped drive the dramatic decline in absolute poverty in developing countries, which last year fell below 10% for the first time.
Trade policy remains strategically important because no country can afford a strong military without a strong economy. Indeed, America’s military leaders are quick to point out their preference for the “soft power” of trade and diplomacy over the “hard power” of military force: The former is a bargain compared to the latter—both in terms of treasure and of blood.
But there’s more to it than that.
In today’s world, when you stand still, you fall behind. The same is true for the rules governing trade. Most of our trade pacts were negotiated long before the rise of the internet and e-commerce, before the U.S. economy became so dependent on intellectual property, and before state-owned enterprises became major players in the global economy.
And so the TPP will update the rulebook for trade. It offers landmark provisions that will protect our creative, innovative, and research-based industries as well as our smaller firms that rely on new technologies and services to reach the 95% of the world’s consumers living outside the U.S.
But the world no longer waits on America. Today, China and other Asian economies are pressing ahead with a mega-agreement dubbed the Regional Comprehensive Economic Partnership (RCEP), encompassing all of Asia but shutting out the U.S.
RCEP may lack the TPP’s innovative protections for a free and open internet, intellectual property, and fair competition with state enterprises, but it would afford preferential treatment to workers and companies on the inside—and leave Americans on the outside, looking in. If it moves forward and the TPP doesn’t, U.S. workers, farmers, and companies will be left behind.
That would be an economic and a strategic blow for the U.S. Our standard of living and our standing in the world would be diminished. It is for all these reasons that Defense Secretary Ash Carter has said that passing the TPP is as important to him as getting a new aircraft carrier.
The TPP must be evaluated first on its economic merits. From the view of the U.S. business community, its economic rationale is powerful. But the wider world is watching: Congress must not overlook the TPP’s strategic importance.