The shriveling of U.S. influence

Today in Chile 11 of the original 12 countries that had signed the Trans-Pacific Partnership (TPP) multilateral trade agreement on February 4, 2016 are signing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11 for short, i.e., the TPP minus the U.S.). Upon taking office President Trump promptly withdrew the United States from the agreement saying that it was “a bad deal”. In fact it modernized and raised the level toward U.S. standards in the areas of e-commerce, intellectual property protection, and dispute resolution. Though the agreement provided significant benefits to the U.S. and despite the U.S. withdrawal, the remaining participants (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) preserved the basic provisions of the original agreement while freezing 22 provisions of particular interest to the United State to facilitate its rejoining at a latter time should it return to its senses.  China and other Pacific Rim countries are also welcome to join if and when they meet the agreement’s high standards. This will not be easy for China should it chose to return to its earlier efforts to integrate into the rules of the world trading system.

The U.S. Congressional Research Service summarized the key provisions of the TPP as follows:

“The TPP would provide several principal trade liberalization and rules based outcomes for the United States. These include the following:

  • lower tariff and non tariff barriers on U.S. goods through eventual elimination of all tariffs on industrial products and most tariffs and quotas on agricultural products;
  • greater service sector liberalization with enhanced disciplines, such as nondiscriminatory and minimum standard of treatment, along with certain exceptions;
  • additional intellectual property rights protections in patent, copyrights, trademarks, and trade secrets; first specific data protection provisions for biologic drugs and new criminal penalties for cybertheft of trade secrets;
  • investment protections that guarantee nondiscriminatory treatment, minimum standard of treatment and other provisions to protect foreign investment, balanced by provisions to protect a state’s right to regulate in the public interest;
  • enforceable provisions designed to provide minimum standards of labor and environmental protection in TPP countries;
  • commitments, without an enforcement mechanism, to avoid currency manipulation, provide transparency and reporting concerning monetary policy, and engage in regulatory dialogue among TPP parties;
  • digital trade commitments to promote the free flow of data and to prevent data localization, except for data localization in financial services, alongside commitments on privacy and exceptions for legitimate public policy purposes;
  • enhanced regulatory transparency and due process provisions in standards setting; and
  • the most expansive disciplines on state owned enterprises ever in a U.S. FTA or the WTO, albeit with exceptions, to advance fair competition with private firms based on commercial considerations.”

No trade agreement (yet) is perfect and the TPP represented a significant improvement for the U.S. and its trading partners of existing agreements.

The 11 signers, in addition to embracing standards that will promote economic growth in their own countries in the long run also sought originally to enhance America’s role and leadership in the Asian Pacific area (i.e., as a counterbalance to the rising strength of China). With or without the U.S. more countries are expected to join the CPTPP after the governments of the current 11 have ratified it. At the top of this list are Taiwan, Thailand, South Korea, the Philippines, and Sri Lanka.

President Trump has chosen to retreat from American leadership in setting and helping to oversee the rules of international cooperation and trade. It seems unlikely that Wilbur Ross and Peter Navarro will give up their fixation on protecting a hand full of inefficient, uncompetitive American industries, so Congress should take back its constitutionally given authority over trade policy delegated to the President in the Trade Act of 1974. https://fas.org/sgp/crs/misc/R44707.pdf

China’s misbehavior can be better addressed using the rules and provision of the WTO in ways that would strengthen the rule based international order rather than weakening it as Trump is now doing with the use of the national security provision. If China is selling its aluminum below cost, i.e., dumping it, we should impose a tariff on China under WTO rules against dumping. The use of the national security provision of the WTO is laughable on the face of it and would weaken rather than strengthen the rule of law in the trade area.

About wcoats

Dr. Warren L. Coats specializes in advising central banks on monetary policy, and in the development of their capacity to formulate and implement monetary policy. He is retired from the International Monetary Fund, where, as Assistant Director of the Monetary and Financial Systems Department, he led missions to over twenty countries. Before then, he served as Visiting Economist to the Board of Governors of the Federal Reserve System, and to the World Bank, and was Assistant Prof of Economics at the Univ. of Virginia from 1970-75. Most recently he was Senior Monetary Policy Advisor to the Central Bank of Iraq; an IMF consultant to the central banks of Afghanistan, Kenya and Zimbabwe; and a Deloitte/USAID advisor to the Government of South Sudan. He is currently a member of the Editorial Board of the Cayman Financial Review and until the end of 2013 was a member of the IMF program team for Afghanistan. His most recent book is entitled "One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina."
This entry was posted in News and politics, trade and tagged , , , , , , , , . Bookmark the permalink.

One Response to The shriveling of U.S. influence

  1. James A. Roumasset says:

    According to https://www.vox.com/2018/3/8/17097206/trump-tariffs-congress , “Trump’s White House cited Section 232 of the Trade Expansion Act of 1962, a provision that gives the secretary of commerce the authority to investigate and determine the impacts of any import on the national security of the United States — and the president the power to adjust tariffs accordingly.”
    The same link describes how Wilber Ross did indeed make such a finding, but then declared that the tariffs are “no big deal.” In other words, the tariffs won’t improve national security. Unfortunately, there is neither check nor balance against the ignorance of commerce secretaries.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s