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Ricochet and the TPP
Ricochet began as a podcast and a subscription-based website, but quickly became a community that extends well beyond. Perhaps it would be more accurate to say it began with the unlikely friendships of its founders — @peterrobinson and @roblong — so the ensuing meet ups and social media interactions of members should not be surprising. Via Facebook, Twitter, or face-to-face, the debates and conversations don’t end here.*
Nor do they always begin here. And sometimes, that’s regrettable because I learned a thing or two that others could certainly appreciate. Case in point, @jamielockett proposed elsewhere that President Donald Trump’s decision to withdraw from the Trans-Pacific Partnership was a mistake. That led to the following exchange including myself, Jamie, and @jamesofengland, reprinted here (somewhat abridged) with their permission.
Me: Nothing prevents [Trump] from renegotiating one-on-one with each country. What were the advantages of the TPP?
No agreement should be thousands of pages. That’s opportunity for mischief.
Jamie: The advantage was the normalization of tariff and IP regulations across multiple jurisdictions making the flow of goods much easier and cheaper. Furthermore, it ensconced America as the central authority figure of the Pacific Rim economies with our standards for regulations and rights central to any participation in a growing pacific free trade zone. Now we have opened the door to China who have already begun the process of establishing their own economic dominance with their evil regime at the center.
Me: And do you believe it was well negotiated by the Obama administration? It’s difficult for me to believe that the errant ideology and priorities that infected his every other policy had no bad influence on the TPP. Again, I would guess that it would make sense for Trump to renegotiate… even if it is the TPP he is negotiating.
Jamie: The TPP has been in the works since the Bush administration. From what I’ve read the tariff reductions were pretty straight forward and well negotiated. I’m a bit less sanguine about the IP protections but that has more to do with my libertarian ideology than it does with real politik.
Me: Well, you have read it and I haven’t, so I’ll trust your judgment.
Jamie: The best person to ask on this is @jamesofengland.
[Cue the bat signal!]
James: The length of the agreement is not an indicator of quality, but if it’s what you’re concerned about, it’s hard to believe that having a dozen similar length agreements instead is helpful in any respect whatsoever.
Me: The length of any agreement is a concern because politicians regularly bury controversial lines to avoid publicity and debate. Perhaps trade agreements are less prone to this corrupt practice than domestic legislation. But we should be wary in any case. Don’t personal lawyers advise that succinct contracts are best? Can the same not be said of corporate and national contracts?
Furthermore, fewer claims within an agreement mean stronger negotiation on the particulars. If I can’t get A, B, C, D, and E unless I accept X, that is a lot of pressure to compromise. But if only A and B are premised on acceptance of X, I have more leeway to negotiate.
Large agreements are more susceptible to deception (more carefully worded clauses not given sufficient consideration) and to pork.
James: You want to know what’s in a contract. There’s two ways that you can achieve this. Firstly, you can make the contract short. Secondly, you can have the contract contain the same language as previous, known, contracts.
If you’re engaging in a personal contract, you probably want it to be short because if you’re drawing something up you’re only going to know what’s in it if you put work into understanding each clause. You probably don’t have a pre-existing lengthy contract. So, there you should make sure that it’s short.
I’ve worked with contracts that were longer than the TPP, though, because in some industries where the relationships are mature and the parties are substantial, they get that way. Oil company contracts are a classic example. It also helps that there are a lot of interested actors (multiple nations don’t increase the number of interest groups all that much, but an individual nation has a lot of different concerns). Because everyone has to pay specialized lawyers considerable sums to understand these contracts, everyone would like it if the contracts could be short and simple, but they want the agreement to be clear and to avoid problematic ambiguity even more than they want brevity.
When Reagan negotiated the CUSFTA with Canada that became the bulk of the NAFTA text, he didn’t make it long because he wanted to hide pork. There was no pork. When Bush added the rest of the NAFTA text, he didn’t add pork. What was there was mostly safeguards against Mexican governmental abuse. As with oil contracts, they’re long because there’s a real chance that you won’t have the parties being friendly and working in good faith thirty years down the line when the clause comes into effect, so you want everything to be spelled out to the greatest extent possible.
Most of the TPP text is taken from the NAFTA and CUSFTA. Rewriting Reagan’s work to make it simpler wouldn’t help provide predictability as well as retaining the language that has already been litigated.
The place where most pork gets hidden is in agency discretion. The most pork filled bill in American history was FDR’s National Industrial Recovery Act, which was pretty short. Obama’s stimulus was only long because people packaged a whole raft of mostly unrelated laws along with it; the stimulus part was small.
James: In terms of the negotiation over particulars, the US promises nothing that I’m aware of in TPP that it has not already promised in existing trade agreements with TPP members. It would expand the scope of those commitments, so Japan etc. would now have tariff free access as well as countries that already have it, but there’s nothing that the US was pressured to give other than giving up pork. Specifically, there’s some industries that negotiate slower implementation of agreements and such; the last NAFTA provision wasn’t fully implemented until 2008. In general, it’s good for America when the US decides not to pick and choose exceptions, so if large agreements had the impact that you suggest that would generally be positive (it would also increase our access to foreign markets). The way that these agreements are negotiated, though, with different teams working on different sectors, means that there isn’t as much cross-issue negotiation as one might have thought and relatively few issues are resolved along the sort of sine qua non lines you suggest.
The governments generally have roughly the same interests; they both want clarity, they both want free trade with proper phytosanitary and other systems in place, they both want to have systems in place to prevent breaches effectively, and so on. The people who are likely to have the A, B, if X issues are the domestic legislators in various countries. In general, it’s undesirable for them to have a lot of negotiation space because we want a clean agreement. There are areas bracketed out for a period of time, but those exceptions should be the few exceptions most important to a country, not every exception that’s important to a representative somewhere.
Me: Why are old agreements folded into new ones? Why not leave or reaffirm the established contract and make the new terms a separate contract? Does folding in the old to make a compilation discourage renegotiation of those old terms?
James: They reuse the language in new, separate, agreements. You want to reuse language as much as you can in part because, yes, renegotiation is a pain, but also because you want to maximize familiarity so that legal precedent is clear and so that you don’t have to retrain all the lawyers.
This is true in trade agreements, but also in personal contracts; you want them to be brief, but you also want to copy and incorporate language that will be familiar to anyone who has to deal with it either as a party to the contract or as an enforcer of it. You’ll find a lot of the Canada-US language in Korea-US not because the KUSFTA incorporated CUSFTA but because everyone in the sector now knows the CUSFTA language and no one wants the legal precedents from previous FTAs to be rendered less clear through novelty.
Just to clarify, most of the language wouldn’t be subject to renegotiation anyway. The great bulk of the language of the TPP, as with all modern trade agreements, is responsible governments limiting the power of irresponsible future governments to engage in bad behavior. When everyone in the room wants the same thing, there just isn’t that big a drive for negotiation.
Caroline: James probably included this in one of replies. More contracts means more people managing the compliance. So more bureaucracy and not just the government’s.
James: Obama’s first USTR was awful, but his second USTR was pretty good. Also, trade agreements are pretty consistently similar to each other; the differences are in the details, which don’t matter all that much in substance. Also, the people Obama was negotiating with were free market capitalists; if you’re a conservative, you shouldn’t want Obama to be negotiating hard, because it’s what the Australians and Japanese and Harper govt. Canadians wanted that you’d want to be law.
Jamie: Don’t forget the Singaporeans.
James: There were several smaller good actors, but it’s the big countries that made the bigger difference. I’d say the next most helpful were Mexico and Chile, but in general TPP was negotiated at a uniquely helpful time for having just about all of the countries being headed by free trading governments.
In defense of Trump, because there was no change to TPP that he could plausibly make that would improve it (Ross suggested changing the rules of origin a little, but while that would be easy to do it wouldn’t persuade anyone that this was a radically different different deal), he probably had to leave to comply with his promises. It’s true that negotiating and signing individual FTAs with the remaining countries is in every respect inferior to being part of a multilateral accord with the same terms. It is also true that his NAFTA resolution might be nuts and he could seriously harm the WTO. If neither of those things happen, though, and we get Japan, Malaysia, Vietnam, New Zealand, and the UK added to the bilateral FTA network we’ll have a global trading system that is substantially more free and more rules based (i.e., with less scope for arbitrary government action) when he leaves than it was when he came in. Less good than if he’d been an ordinary President, but “only somewhat improved” is a target devoutly to be desired.
And if we get bilateral FTAs and the rest of the TPP signs with each other (not certain, since some of the governments are now less conservative than the ones who negotiated it), it should be pretty easy for Trump’s successor to sign us up.
The End. Or it would be if we left the conversation there. But I knew if I brought it here, y’all would have plenty more to add.
Ricochet isn’t just a site, nor even just a community. It’s also an education.
[* Editors’ Note: Want to become a part of the community Aaron describes here? Membership starts at just $5 a month and we’d love you to join the conversation.]
Published in Economics
I’ve never claimed that trade will increase the liberty of the Chinese people (though it has increased their economic liberty significantly). My argument is that creating a pan-pacific free trade bloc institutionalizing our standard will provide a strong inducement for China to adopt those standards.
A few thoughts:
Because China will cheat?
If there were a country in the TPP that limited the degree of agreement, there would have been a serious question about whether to include them. Since there was no country taking part in the negotiations that either attempted or succeeded in making the language substantially different to the Korea-US FTA in ways that required changes in US law or that restricted US access to foreign markets, that potential trade off did not exist in practice.
What having a single agreement rather than a spaghetti bowl of bilateral agreements meant was that we’d lower compliance costs for businesses with supply chains that involve more than two countries and, to a lesser extent, those whose supply chains involve only two countries.
As Aaron quotes me saying, you get most of the benefit from the bilaterals at only a little more cost and it may be easy for Trump’s successor to take us to take us to a regional system, but even if you ignore the costs of the delay, and even if neither China nor Russia exploits the opportunity we’re providing them with, there’s no apparent advantage to this system other than the political gain of being able to keep an ill advised promise.
Can the Pacific Nations (or any others?) be confident China would honor any agreement with them?
If the now-moth-balled TPP, was so familiar, why did it take a decade to get to the point of the vote?
And if it was so great, why wasn’t it completed by the now mothballed President Obama, as part of his historical legacy?
I never followed the TPP details much, but my recall was there was secret dealing, and blind trust votes. Stuff like that always makes a less informed public, even more less informed, and uncomfortable about the secrecy, and the reasons for it.
China is not a partner to TPP. To the extent it influences China it is because China would have to adhere to its requirements in order to join. The objection is tha China would cheat, which is the same objection for any trade deal involving China.
Your standard as to what constitutes success here seems to be radically different from mine. If that was the policy goal then what we have done is vastly increased the wealth of a hostile, authoritarian regime in exchange for some debatable increase in the freedom of its citizens. Not something I would call successful policy.
I mentioned nothing about mutual exclusivity, it is that the possible benefits with respect to constraining the PRC as so marginal as to be irrelevant.
This bothers me too. If it was so transparently good, it should have been an easy sell over the course of 8 years. It is not up to me to read this monstrosity, it is up for the people selling it to win me over.
I think we are too easy on China. I think Bush should have dropped a bomb on the plane they forced down, demanded the immediate release of our airmen, and sent three carriers off their coasts. I think we should, at every turn, face China down, and make them look like the paper dragon they are.
This is most likely the case. So is that the best argument out there for backing the TPP? Supporting the supply chains of multinationals assembling their products in other nations and encouraging such? I have to say that if this is the best argument out there supporters would be rather wise to whisper it quietly, it seems a large number of voters have decided the trade offs from such arrangements are not really worth it.
In Audacity of Hope, trade is the one area where Obama admits to voting cynically; he claims to have voted against CAFTA, but that he’d have voted for it if his vote was necessary for it to pass. When he took office, he appointed Ron Kirk as his trade rep. It’s genuinely difficult to overstate how unqualified Kirk was for the position. There’s a fantastic (in a particular kind of way) lecture he gave a year in in which he described how he discovered *after confirmation* that EU-US trade was in the trillions. It’s as if someone were appointed baseball commissioner only to find out it was an entirely different game to cricket. Weirdly, it appears that Obama really did want some diversity picks in his cabinet and didn’t know many African American politicians. Also, Kirk was an important supporter in the primaries as Mayor of Dallas.
Schwab, Bush’s last rep, did engage in some talks toward the end of his administration and had we had McCain looking likely those talks would probably have been more serious. Congress was pretty clear that it wasn’t going to pass much (with the oddly popular exception of the Peru agreement, which received support from the majority of Democrats as well as from Republicans).
Froman, Obama’s second USTR, was pretty good. It took a little under two and a half years from his taking office to get the draft written up. There’s a lot of consulting to be done and there were some countries (most notably Vietnam) that didn’t have a whole lot of experience with this stuff, but in general that’s not a bad timeframe for the consolidation of dozens of bilateral trade agreements into a single agreement and for the formulation of new agreements.
Putin’s a really big deal, and Putin’s empowerment of the fringes in both parties made things substantially harder. It caused Cruz to flip on the issue and would likely have cost other Republican votes. More importantly from Obama’s perspective, voting on it before the election would have exacerbated Democratic internal tensions and cost the party significantly; we’d probably have won the New Hampshire Senate race, in particular, if there’d been an early 2016 vote. I’ve only got the hunch of an ex-USTR attorney as supporting evidence of my gut on this, but she thought that they’d believed that there would be a better opportunity after the populism passed, and it just never did. Once it was clear that Trump was the Republican nominee, Republicans couldn’t go out and vote for it, and trade agreements pass primarily on Republican votes. Also, Obama really isn’t very interested in trade. He was dragged into TPP because he was running a government that included many people who did and he had allies who did, but Froman didn’t exactly get the kind of support that Portman or Zoellick did.
All international agreements are negotiated in secret because otherwise you’d never get anything done. Laws, too, for the most part. The Putin media made a big deal out of the secrecy, though, and claimed that it was secret months after it was completed (it was published pretty much immediately on completion). There’s been no TPP vote, but there was a Trade Promotion Authority vote, which gave Obama the authority to seriously negotiate TPP and other trade deals. Congressmen were given access to the drafts for TPP and TTIP (the EU agreement) that existed at the time, but weren’t given access to the final negotiated draft because it didn’t yet exist.
That’s normal for those kinds of laws, though. Not just the snarky stuff about how those laws don’t normally involve time travel, but fast track authority is given to negotiate particular kinds of trade agreements (the laws specify the permissible parameters) without knowing the details of the agreement. Similarly, when Congress creates the rules for reconciliation, they don’t know the sorts of budgets that they’re going to pass.
Yep. That’s why you get assailed by so much craziness about it. Also, there’s a tremendous segment of the punditocracy that feels that trade is too dull to learn about but not too dull to pontificate about. There was a Ricochet podcast created on the NR Cruise with a pundit claiming expertise that claimed, among other things, that the NAFTA tariffs would be less intrusive if they were a 5% flat rate, that the wording was long because it was negotiated by Clinton, that it involved “handouts”, and such. Maybe two dozen totally absurd claims in a half hour. Still, that was innocent/ negligent.
The more important factor is the degree to which the fringes of both parties are keen to flat out lie about the process and the issue. Thus, for instance, there’s an Egyptian Bilateral Investment Treaty case in which a refuse collecting company said that its cost plus contract with a local government should see it getting higher fees to reflect higher wages associated with a minimum wage contract (they won their case, because obviously that’s how cost plus contracts work). Elizabeth Warren was able to persuade the Washington Post to accept an op-ed in which she described this as “a French company that sued Egypt because Egypt raised its minimum wage” and “So if a Vietnamese company with U.S. operations wanted to challenge an increase in the U.S. minimum wage, it could use ISDS.” Obama has called her out on the issue, but in general it is difficult for Democrats to criticize Warren when she’s attacking capitalism, just as Cruz eventually decided to give up opposing Trump on an issue that made Cruz look like he was siding with elites over the recipients of pork. And once you’ve persuaded politicians and media figures that they have to be on a particular side that doesn’t have sound arguments in its favor, you’re going to see conspiracy theories gaining a lot more mainstream acceptance.
It supports multinationals who assemble their products in the United States and export them elsewhere. It also supports small businesses who have import or export elements to their work. Indeed, it makes more of a difference there because they’re unlikely to have the substantial legal departments of major multinationals.
If your argument is that large numbers of voters have considered the issue and have decided that it’s helpful to have substantial lawyers fees and legal delays being involved in trade then I guess I’d be keen to see evidence for this proposition. As a trade lawyer, I can’t say that I’d be entirely opposed to this sentiment in all its respects.
Also, obviously, it would also have benefited us geopolitically, providing a more efficient and US friendly forum for the resolution of future issues in the region than currently exists.
Some interesting details from someone who was clearly close to the process, thanks for passing them along.
It’s because people in government, both American and foreign, agreed with the sentiments of your second paragraph that they disagreed with the conclusion you drew from the first. We do want to stand up against China, and it’s helpful when we have the institutions to help us to do that. We could launch military strikes against China for the biggest Chinese violations, but there’s a whole lot of different issues we have with China and we can’t bomb our way out of all of them (I mean, I guess we could escalate directly to full scale war, but I’m guessing that’s not what you’re calling for).
I should be clear that I’ve had few conversations with anyone directly involved in the process. Much as I like the Froman USTR office more than the Kirk office I don’t really know anyone who works for it.
Nothing quite so interesting but something much more straightforward.
First if you are basing your arguments in favor of free trade on the idea that reducing the supply chain costs of multinationals who are not assembling their products in this nation is the goal then you should be aware you are not aiding the cause you appear to support.
Second free trade is constantly described as an unambiguous good by supporters and the refusal of supporters such as yourself to acknowledge trade offs being involved does absolutely nothing to advance it and only engenders suspicion from voters.
Pure speculation.
Understood.
Thank you for your thorough response. Helpful to me!
@jamesofengland
You seem to be under the impression that US citizens, small businesses, and manufacturers don’t source goods from outside our borders or that jobs aren’t created from lower prices of inputs. Save one steel job with tariffs and you lose two jobs at carrier because the cost of their materials rose.
What else would you expect to happen to an isolated China whose nearest neighbors were all operating under a US based trade system?
Well, firstly, I should be clear that my purpose is less to advocate than inform. It’s true that the a substantial portion of of the economic benefit and in particular the jobs created in the US by trade agreements are created by making multinationals more efficient when they’re operating in America. I agree that this isn’t a popular choice. Conservatism going back to Bastiat has been well aware that while focusing on facially neutral ordered liberty makes for a more prosperous and healthy society, it makes for less intuitive stories.
Secondly, you’re replying to my comment about how the people who would benefit most are the small businesses who either import or export some of their produce.
That’s because it’s an unambiguous good and there are people who fail to understand that.
Well, what sort of trade offs are you talking about? If you mean “it makes us poor and destroys the economy” then, yeah, it’s certainly true that free markets, both domestic and international, are better for the economy than a government directed economy, so economists who are not in union pockets reject that. Also, yes, it’s often the case that voters are uncomfortable with that.
If you’re talking about trade offs like concerns about invasive species, the minority of “national security” concerns that are actually national security concerns, areas where sanctions are valuable, immigration issues, and the empowering of criminal networks, then I agree that those are all things that occasionally see promoters of free trade often find themselves facing off against genuine issues of substance as well as political issues. If this thread was about free trade, I’d be happy to go into any of those generally. Since the thread is about TPP, I’d be happy to go into any of those as they relate to TPP if you believe that they do so problematically.
You think it’s pure speculation that TPP constitutes a more efficient forum or a more pro-US forum than others available (perhaps you have one in mind?), or that it would be useful to have such a forum?
We need a leader, not a reader!
What part of trade-offs are you having difficulty grasping?
This was sloppiness on my part, apologies conflating the two. Your initial point as to the benefits to multinationals I agree with as to the latter point with regard to small business benefits as contrasted with bilateral deals, I am skeptical.
Here is the blind spot. This should be blindingly obvious, the fact that you cannot see it is indicative of why we have Trump. On some macroeconomic level cheaper goods from free trade produced from third-world nations are an unambiguous good. Who does not wish for cheaper goods?
However the manufacturer in Pennsylvania, Ohio, etc. who cannot compete with third world labor and is driven out of business in a town where they are they primary source of employment, results in a devastated town. This is a consequence of such thinking. This is what is known as a trade-off.
Now some might see this as a good trade, others however may see it as a bad trade and they vote accordingly.
None, how about you?
Apparently you need to try harder.
Because you don’t believe that substantial numbers of small businesses import or export to multiple countries or because you don’t believe that a single legal regime is easier for small businesses to deal with than multiple legal regimes?
It’s true that Vietnam is pretty poor. Malaysia is a Newly Industrialized Country, so not really third world, but you might quibble over that. Still, the great bulk of the new TPP trade gains would come from Japan and New Zealand, which are not poor countries. You’re not understanding how global trade works if you think of it as being primarily a rich-poor thing; it’s primarily a rich-rich thing. Although way more people get excited about the threats of importing stuff from brown people in Mexico, we import less from them than we do the comparatively tiny population of Canada (exports also prefer richer destinations).
When we trade with Japan, we get cheaper goods, and the Japanese get cheaper goods. You’re correct that that’s one of the benefits of trade.
It’s true that Mexico’s been doing pretty well in manufacturing. The reason for that, though, is not that their labor is cheaper than anyone else’s (it’s really not; trade has been very good for Mexican wages as well as Mexican savers). It’s because Mexico has trade agreements with an incredible portion of the world, which means that if you have a factory that takes inputs from a variety of sources and turns them into products that you sell globally (and there’s a lot of small businesses that fit this model), you’re often going to be better off in Mexico than anywhere else in the world.
It’s not true that manufacturing as a whole has been doing badly in the US. It’s been doing better than at any point in history. We’re making amazing things in amazing quantities. Manufacturing employment is going down, but trade agreements aren’t the reason that we’re mechanizing factories. And, again, trade is a non-trivial driver for this. Nissan is a net exporter from the US; it sells more US made Nissans to foreigners than it sells foreign made Nissans to the US. Partly because US made Nissans have a ready export market, in part because of FTAs, the US is a good place to build Nissan factories and supply workers there with jobs.
Farming is the same, in part (obviously, farms aren’t as flexible in their siting as factories). American farming is in better shape than ever, in part because of the massive exports our boys in tractors are able to bring out of the earth, but there isn’t exactly a boom in farmer numbers. Mechanizing farming (the business my grandfather was in) has seen trade offs of the kind you suggest; we’ve massively decreased starvation and increased the supply of non-farm labor but also massively reduced farm employment. If you’re against Monsanto on those grounds, that somewhat makes sense. I’m not a Luddite myself, but if you have the right set of priors their values were coherent. Trade isn’t that, though.
You mocked Jamie for not understanding that the trade off was that we got more jobs, but that some jobs were lost in the churn. I agree with you that this is a trade-off. I’m not personally in favor of TAA, but it’s certainly true that in any system where the government transfers resources from some citizens to others, some of the recipients will benefit.
You then provided an example that suggested that you didn’t understand. The biggest study we have on this suggests TPP wouldn’t provide much change in the number of net jobs, but the impact on employment numbers appears to be trivially positive rather than massively negative. The impact on income is bigger, and also positive. So far as I’m aware, all non-union funded studies agree, although that’s a long way from saying that all studies agree.
Jamie, if you think that your next reply to this is going to elevate the conversation, by all means send it. If it’s a single line of snark, though, I hope that the wit/ belligerence ratio is very high indeed.
I’m doing just fine, thanks.
Advice you should consider yourself.
If you you are attempting to turn my good opinion of you into contempt slights such as this will serve you well.
“Way more people” was not intended to be a slight at you. It was intended to suggest that this was a common focus; the Australian FTA thus got a lot less notice than the CAFTA, although the Australians probably took more US jobs because of it than the Nicaraguans and pals because of theirs. It’s much easier for trade issues to make news in the US when there’s a racial undercurrent; Europeans have to engage in wackiness like vandalizing McDonalds to get noticed. That means that even those who lack a sense of racial tribalism will get the impression that global trade is dominated by transfers between poor and rich countries, much as even people without an animus against the Catholic Church will think of child abuse as being more of a problem with Catholic clergy than with public school teachers.
If your concern is that there’s going to be a lot of factories moving from Ohio to Vietnam, then that’s one thing. Since most people understand that that’s not really likely to happen, even after Trump’s US-Vietnam agreement is ratified (or whoever ratifies it afterwards), I took you to be suggesting the common claim that TPP was opening trade with more poor countries than Vietnam.