Trans-Pacific Partnership

TPP Offered Positive Alternative to US-China Trade War

There is no obvious end in sight to the escalating US-China trade war that has business owners, farmers, consumers and economists worried. It makes you wonder whether a trade war would have been necessary if the United States had remained in the Trans-Pacific Partnership and gained economic leverage in the Asia Pacific.

There is no obvious end in sight to the escalating US-China trade war that has business owners, farmers, consumers and economists worried. It makes you wonder whether a trade war would have been necessary if the United States had remained in the Trans-Pacific Partnership and gained economic leverage in the Asia Pacific.

The clatter surrounding the US-China trade war has further diminished the memory of the Trans-Pacific Partnership (TPP), which was negotiated by President Obama and subsequently ditched by President Trump. If implemented as intended, TPP would have set the rules for 40 percent of the world’s trade. It may have offered an alternative to a trade war.

What has gone largely unnoticed, at least in the United States, is that the 11 other nations in the partnership kept talking and formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership  (CPTPP or TPP-11). The new agreement has been ratified by a majority of signatory countries and went into effect December 30, 2018.

The terms in TPP-11 are largely the same as the original TPP, with notable exceptions.

The CPTPP omits key provisions sought by US trade negotiators, such as longer copyright terms, automatic patent extensions and unique protections for new technologies, including biologics.

The basic agreement eliminates or reduces tariffs, liberalizes cross-border service restrictions, opens markets to foreign investment, establishes e-commerce guidelines, makes it easier for small business to engage in trade and strengthens intellectual property protection and enforcement. TPP-11 also contains labor and environmental standards, transparency rules and restrictions on monopolies and state-owned enterprises. China was excluded from conversations leading to the TPP and is not one of the TPP-11 members.

The TPP’s origins date back to President George W. Bush who called for trade negotiations with the leading Pacific Rim economies. Obama took up the TPP as part of his pivot to the Asia Pacific – and as a counter-balance to China’s growing economic dominance and influence. Trump withdrew from TPP to keep faith with a campaign promise and to pursue bilateral trade negotiations chiefly aimed at reducing trade deficits. There are reports a US-Japanese bilateral agreement is near final agreement. The United States, Canada and Mexico have negotiated an updated version of the North American Free Trade Agreement, but it remains stalled in Congress.

Since withdrawing from the TPP, Trump has imposed rounds of tariffs to force China to modify its intellectual property rule, forced technology transfer policies and state-owned business advantages. US businesses are wary of a continuing trade war because of disruptions to supply chains that are deeply embedded in China. Meanwhile, hard-earned export markets for products such as soybeans and lobsters have shrunk as the Chinese have turned to Russian farmers and Canadian lobstermen.

At times, it seems as if the United States lacks real leverage to win Chinese concessions. Experts who track China say US views that its Asian competitor is merely a low-cost outpost for outsourcing overlook growing Chinese competence for turning innovation into products. An example is an investment by Johnson & Johnson, which invested $180 million in a factory and a science hub for “problem-solving scientists” in the bio-pharmaceutical sector.

Chinese leaders have loftier ambitions. They want to be innovators, not just implementers. They have set their sights on artificial intelligence as the next major disruption of technology and manufacturing. China is installing electric charging stations through its vast territory because it wants to be the world’s leading producer of electric vehicles. For years, China has sent many of its best minds to study at American universities. Now, it is actively recruiting for the return of many of those talented minds to support its innovation ambitions.

Along with its innovation agenda, China is investing heavily in infrastructure, with a massive Belt and Road Initiative, which involves investments in 152 countries in Asia, Europe, the Middle East, the Americas and Africa. Re-establishment of the Silk Road is a real-life metaphor for recreating historical land and maritime links that in the future will connect China’s industry to most of the rest of the world – and potentially isolate the United States. The Trump administration hasn’t seriously proposed a major infrastructure investment package and instead is fixated on building a border wall with Mexico, the third largest US trading partner behind China and Canada.

Which brings the conversation back to TPP or, more precisely, TPP-11. With the benefit of hindsight, a contemporary trade alliance with major Pacific Rim economies seems like a pretty good insurance policy to spreading Chinese influence and continuing intransigence on what America views as fair trade. 

The TPP-11 carefully dismissed US planks, referring to their deletions as “suspensions,” leaving an opening for the United States to rejoin the partnership. Trump briefly entertained rejoining, but he changed his mind. Then he launched his tariffs, trade wars and tirades against windmills.

As the US-China trade war shows no quick or obvious exit route, it is worth pondering whether another approach might have achieved better results. Economists warn the continuing trade war is slowing global economic activity, perhaps by as much as $585 billion by next year. The trade war’s unintended consequences include reducing US corporate investment, disrupting the stock market and threatening a recession. Economic studies predicted TPP would have boosted the US economy, adding $130 billion to US gross domestic product by 2030.

Opposition in both political parties led to the scuttling of TPP, largely over predicted losses in US manufacturing jobs. The studies indicated those job losses would have been offset by gains in the agricultural and service sectors. 

The future of manufacturing jobs is itself problematic, especially with advances in robotics and AI. One commentator said globalization has already “decapitalized” much US manufacturing, which he says is unlikely ever to return. 

US manufacturing employment began rebounding in the recovery following the Great Recession and continued in the first 28 months of Trump’s presidency (525,000 under Obama, 471,000 under Trump). However, manufacturing job growth has dropped off markedly in 2019. The aggregate number of hours worked in in US manufacturing has backed off to what it was last year. Forward-looking indexes predict a sharp retraction in manufacturing, in part due to the US-China trade war and rising tariffs. Manufacturing wage growth has lagged overall wage increases.

A fair assessment is that the United States is not experiencing a manufacturing renaissance under current trade and tax policies – and without the TPP.

As reported by the Council on Foreign Relations, “[TPP] would have expanded US trade and investment abroad, spurred economic growth, lowered consumer prices and created new jobs, while also advancing U.S. strategic interests in the Asia-Pacific region.” That’s a much rosier outlook than what’s on the horizon with continuing US-China trade war.

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Gary Conkling is principal and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.

NAFTA with a New Name

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Canadians agreed to final terms for a $1.2 trillion North American free trade agreement that gave President Trump a political triumph and NAFTA a new name. However, the deal doesn’t end a simmering trade war sparked by US tariffs on steel and aluminum and still faces a treacherous political road to passage.

Trade experts gave credit to the Trump administration for completing a three-way deal to update the 25-year-old trade that candidate Trump derided as terrible. Trump critics note the new trade pact is largely the same car with a rebranded nameplate to appease Trump. Peter Navarro, Trump’s trade adviser, said the foundation remains, but the superstructure is superior. 

The United States-Mexico-Canada Agreement (USMCA) still must be approved by Congress, which seems more likely after cliffhanger negotiations with Canada prevented Trump from submitting just a bilateral agreement with Mexico. The agreement also must be ratified by the respective legislative bodies in Canada and Mexico.

Most everybody agreed NAFTA needed a refresher, if for no other reason to account for a phalanx of digital industries and e-commerce that didn’t exist when it was signed. There also was a push to strengthen intellectual property protections, the underlying issue that has sparked a Trump-inspired trade war with China. There are reportedly 63 pages worth of provisions that address patents and trademarks, including two additional years of protection for biologic drugs, which Trump hailed as a key to US medical innovation.

A major sticking point was Canada’s barrier that prevents US dairy farmers from penetrating their market. The Canadians traded some of that protection to retain a trade dispute resolution provision that Trump wanted to scrap. Somewhat ironically, Canadians had agreed to a similar sized dairy concession in the Trans-Pacific Partnership, which Trump abandoned when he took office.

Domestic car manufacturing was a core reason why Trump pushed for a better North American trade agreement. The agreement reached earlier with Mexico increases the North American auto content requirements and requires more content from higher paid autoworkers to qualify for duty-free treatment. AFL-CIO leaders withheld their support for the change, saying they doubted the higher wages and better working conditions in Mexico can be enforced. The USMCA effectively requires unionization of Mexican autoworkers, which runs counter to state-level right-to-work laws, which political conservatives have pushed for in the United States.

Economists fret that higher wages will make North American vehicles more expensive and less competitive against vehicles imported from overseas, which face a nominal tariff. Trump is pledging to address the import tariff and potentially replace it with quotas. There also is a side letter to the agreement that preserves Trump’s ability to impose tariffs on automobiles assembled in Mexico or Canada. 

Trump sought a 5-year sunset clause on the deal. In the final agreement, the USMCA has a 16-year life span, with a review after six years.

A key element of the deal for the incoming Mexican president is a clause that restates Mexico’s claim of ownership of all hydrocarbons in its subsoil. The provision doesn’t prevent foreign companies from producing oil in Mexico.

While agreement on NAFTA modernization brought sighs of relief, there is still consternation over steel and aluminum tariffs – and their rationale: protecting US national security. The pretense for the tariffs has irked Canadians who don’t view themselves as security risks to the United States.

Looming elections that could flip control of the House to Democrats might complicate approval of the USMCA. Democrats may not want to bless a Trump achievement before the 2020 presidential election and Republicans may decide to poke the eye of unions, which have been a major force behind revamping NAFTA. That could leave the USMCA an agreement without a country and further muddy the waters on US trade policy.

 

‘Working Big Time’ or a Disaster in Process

President Trump lavishes praise on his trade policies, which he says are “working big time.” Linfield agricultural economist Eric Schuck disagrees and says Trump tariffs will plummet US farmers into economic oblivion.

President Trump lavishes praise on his trade policies, which he says are “working big time.” Linfield agricultural economist Eric Schuck disagrees and says Trump tariffs will plummet US farmers into economic oblivion.

President Trump has tweeted that his tariffs are “working big time.” A Linfield professor who specializes in agricultural economics offers a different verdict.

“American farmers are going to suffer losses. How large those losses will be remains an open question,” writes Eric Schuck in a guest editorial published by the News-Register in McMinnville. “The end result is this: A multitude of growers are either playing without a safety net or facing a long fall to reach that net.”

According to Trump’s tweet posted over the weekend, “Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, Tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.”

Schuck paints a starkly different picture. “The U.S. exported about $12 billion worth of soybeans to China in 2017. That represents about half the total soybean exports from the United States and almost a third of all US farm receipts for soybeans. So US soybean trade with China is a big deal. Unfortunately, China recently canceled about a million tons of orders.”

Domestic soybean producers have avoided disaster by ramping up exports to Brazil, which has picked up the slack in selling soybeans to China, Schuck explains.

“On the surface, that would seem to mean U.S. growers aren’t taking a hit from our nascent trade war with China,” he wrote.” But that couldn’t be further from the truth.  China has been our best customer in part because it pays the best price. While our soybeans are now finding an outlet in Brazil, they are doing it at a price that has tumbled nearly 20 percent in the last 90 days.”

Linfield College agricultural economist Eric Schuck takes issue with President Trump about the impact of tariffs on US commodity producers.

Linfield College agricultural economist Eric Schuck takes issue with President Trump about the impact of tariffs on US commodity producers.

The Trump administration has acknowledged tariffs are hitting US farmers hard. Their solution is a $12 billion one-time financial bailout. Schuck thinks the tonic is as bad or worse than the tariffs. Here is his explanation:

“To add insult to injury, the proposed remedies actually make things worse down on the farm. The US Department of Agriculture has announced its intention to use the Depression-era Commodity Credit Corporation to backstop falling prices. The mechanics are convoluted, but the CCC will basically act as the buyer of last resort for crops that no longer have a market.

“This leads to the federal government holding larger stores of surplus crops, most of which will wind up going into food banks or school lunch programs. While that can be helpful in some respects, the pressure of large domestic surpluses and demand diversion through food aid programs tends to drive crop prices down even further. And that drives up the cost to US taxpayers even more.”

While tariffs may not make economic sense, compensating US growers for their impact may violate international law, according to Schuck. “Any action to aid farmers beyond current levels would most likely expose the United States to lawsuits by both China and Brazil under World Trade Organization rules. And because the trade fiasco was triggered by US actions, we would most likely lose.”

Soybean producers aren’t the only US agricultural commodity to face repercussions from Trump’s tariffs. “Cherry growers witnessed tariffs rise as much as 50 percent while their crop was in transit to China,” Schuck says.” Unable to adjust, the price paid by Chinese consumers has held steady, while the price paid to American growers has fallen through the floor. Other commodities, notably apples, pears, chicken and pork, will soon suffer similar trauma.”

Trump thinks the US Treasury will reap the benefit of his tariffs. Schuck says, “As a result, the Chinese treasury stands to be the primary beneficiary of US tariffs on Chinese goods.”

Schuck claims, “None of this needed to happen. While China can be a frustrating trading partner, especially in terms of intellectual property, there were other ways to manage the problem. The Trans-Pacific Partnership offered to collectively exert leverage over China, in concert with the rest of our trading partners, but has been cast aside by the new administration. Instead, we find ourselves adrift with virtually no international support, because we’ve simultaneously started trade wars with everyone else who might share an interest in confronting China, including Canada, the European Union and Japan.”

Somewhat futilely, US Secretary of State Mike Pompeo promoted a $113 million Indo-Pacific infrastructure initiative last week, even as Asian leaders are forging ahead on a multilateral trade arrangement that reportedly would include China, but not the United States.

That provides interesting context for Schuck’s conclusion: “There’s only one way out of this: Declare victory and try to get back to the status quo. Unfortunately, that may no longer be an option.”

[The impacts from Trump tariffs continue to ripple outward, including a significant delay on a key traffic signal in Clackamas County.]

 

Yet Another Unbelievable, Wacky Week in Washington, DC

As weeks go in Washington, DC, this has to be one of the wackiest as President Trump plots an attack on Syria, Facebook is accused of being a monopoly and former FBI Director James Comey’s memoir says the White House is run like a forest fire. And that doesn’t include the retirement announcement of House Speaker Paul Ryan and former Speaker John Boehner’s decision to advocate for legal medical marijuana.

As weeks go in Washington, DC, this has to be one of the wackiest as President Trump plots an attack on Syria, Facebook is accused of being a monopoly and former FBI Director James Comey’s memoir says the White House is run like a forest fire. And that doesn’t include the retirement announcement of House Speaker Paul Ryan and former Speaker John Boehner’s decision to advocate for legal medical marijuana.

You can’t say nothing is happening in the nation’s capital. You just can’t believe what’s happening.

President Trump is preparing to respond to a poison gas attack of civilians in Syria, signaled a reversal on the Trans-Pacific Partnership trade deal and had a tweet tirade over a raid of the home and office of his personal attorney, Michael Cohen. Trump said the raid was “disgraceful.” Cohen’s attorneys said it was “unnecessary and inappropriate.” Cohen said the agents who carried out the raid were “polite and respectful.” Media reports suggested the purpose of the raid may have been to seize recordings Cohen made of his conversations, including with Trump.

GOP House Speaker Paul Ryan announced he is retiring at the end of his term, fueling speculation of an impending GOP shellacking in the mid-term elections this fall. Meanwhile, Ryan’s Republican predecessor, John Boehner, announced his views on cannabis have “evolved” and he will advocate for legalization of medical marijuana.

Former FBI Director James Comey’s tell-all memoir is leaked that delivers scathing criticism of Trump as “unethical and untethered to the truth” and more like a mob boss than the leader of the free world. Trump responded on Twitter by calling Comey an “untruthful slime ball” and a “leaker” of classified information. Somewhere in the West Wing, former strategic advisor Steve Bannon was trying to convince Trump aides to go gonzo.

Secretary of State nominee Mike Pompeo underwent confirmation hearings where some of the most heated questions centered on what he says to Trump in their private conversations. Meanwhile, the Senate moved forward the nomination of a former coal industry lobbyist as the top deputy at the Environmental Protection Agency.

Senate and House committees, including the House Energy and Commerce Committee chaired by Oregon Congressman Greg Walden, grilled Facebook founder and CEO Mark Zuckerberg about failures to protect user privacy. Questioning zeroed in on whether Facebook is a monopoly and should be regulated.

The Congressional Budget Office issued an updated analysis of the GOP tax cut indicating it will result in a $1.9 trillion deficit and 80 percent of the benefit will accrue to foreigners, which complicates Republican campaign plans to tout the tax cut as a major achievement. Retiring Tennessee Senator Bob Corker told reporters voting for the GOP-backed tax cut may have been his biggest blunder in office. Trump dismissed the CBO findings.

Despite promising a swift response with “new, smart missiles,” Trump and his national security team were still debating how and when to respond to Syria’s renewed used of chemical weapons in light of Russia’s threat to defend Syrian military installations if attacked by US missiles or armed forces.

Trump’s tariff talk, which rattled stock markets, angered farmers and drew reciprocal tariffs, cooled off after Chinese President Xi Jinping gave what observers viewed as a conciliatory speech on trade relationships and included a reference to protection of intellectual property of foreign companies. Despite tough talk on the campaign trail and quick action when in office to dump US participation in the Trans-Pacific Partnership, Trump suddenly recognized the continued efforts of the other 11 Pacific Rim partners to write fair trade rules as a possible source of leverage on China.

Trump chose to stay in Washington, DC instead of attending a Latin American summit focusing on trade, including apparently stalled talks on revisions to the North American Free Trade Agreement. Vice President Mike Pence, who is filling in for Trump, is expected to hear pushback from Latin American leaders about Trump’s comments and actions toward Latino immigrants. Aides to Pence said his individual meetings with leaders are intended to “soften the edges” of US foreign policy and immigration views.

The week provided a lot for Trump to fume about, prompting stories about the President’s renewed consideration of firing Deputy Attorney General Rod Rosenstein and Special Counsel Robert Mueller. Previous musings about such firings have been dismissed by the White House, Trump’s lawyers and Republican leaders on the Hill. However, this week Senate Judiciary Chair Charles Grassley sought expedited consideration of bipartisan legislation to insulate the Mueller investigation from any adverse action by Trump.

Toward the end of the week, Trump pardoned Lewis “Scooter” Libby, the former chief of staff for Vice President Dick Cheney, who was convicted in 2007 of perjury and obstruction of justice involving the leak of a CIA officer’s identity. Libby’s sentence was commuted by President George W. Bush, but not pardoned. The timing of Trump’s pardon seemed like a signal that he would protect those who protect him.

The beehive in Washington, DC this week didn’t include any mention of or tweets about North Korea. The leaders of North and South Korea are scheduled to meet April 27 and a face-to-face meeting between Kim Jong-un and Trump is anticipated in either May or June.

 

Perspective on Multilateral Trade Deals and Trade Wars

President Trump’s intention to impose tariffs on imported steel and aluminum caused ripples on Wall Street, outcries from companies that depend on global supply chains and warnings from economists who cited the cost of trade wars.

President Trump’s intention to impose tariffs on imported steel and aluminum caused ripples on Wall Street, outcries from companies that depend on global supply chains and warnings from economists who cited the cost of trade wars.

President Trump’s threat to impose a 25 percent tariff on steel imports and 10 percent on aluminum imports stunned Wall Street, infuriated US international trading partners and confounded economists.

Trump defended his proposed tariffs as campaign promises he intends to keep. More fundamentally, they reflect his view that bilateral trade deals that his administration would negotiate would be better for Americans than multilateral trade pacts, which he has deplored as unfair to US workers. So far, few nations have shown much interest in bilateral trade deals. The United States and a post-Brexit United Kingdom will need to work out bilateral trade arrangements, but that can’t occur until the UK is officially out of the European Union.

Stunned Wall Street investors worry about the ripple effects of a trade war on the broader US economy. International trading partners are contemplating retaliation. Economists point to the unpleasant history of trade wars. Trump says trade wars can be good and winnable.

Like immigrant bans and border walls, unilateral tariffs have gone out of favor in the globalized economy. Since tariffs levied as a cure to the Great Depression, which in actuality deepened and lengthened the depression, industrialized nations have moved toward multilateral military, diplomatic and trade arrangements. NATO, the United Nations, the European Union and the North American Free Trade Agreement are prime examples.

The motivation for multilateral arrangements is to provide for greater security and enhanced economic opportunity at the expense of some domestic industries and workers. The underlying macroeconomic theory is that allowing countries to realize their competitive advantages on a greater scale will create more prosperity than protecting domestic markets. The winners tend to be consumers and global companies that have clear rules to follow for their international supply chains. The losers are industries and economic sectors that can’t compete globally.

The losses are not insignificant and can be enormously destructive in regional or state economies such as the Rust Belt. Politicians and organized labor have responded to abandoned factories, displaced workers and failing farms by blaming “free trade” and taking aim at NAFTA and the proposed Trans-Pacific Partnership, which was intended to connect US economic interests into an Asian Pacific trading community.

Even though Trump withdrew from the TPP, the other 11 nations involved have continued to pursue a trade pact among themselves, for among other reasons self-protection against China’s growing economic power and its interest in pursuing separate trade deals with Japan, Indian and South Korea. European nations created an economic union, including a common currency, to leverage their collective market in the face of a dominating US economy, which now boasts a $17 trillion annual gross domestic product.

Along the way, the globalization of finance overwhelmed global trade in goods. Capital sloshes across national borders thanks to creative finance and the advent of shell companies, almost without regard to national banking regulations or tax policy.

One of the largest ironies in the current trade dispute is that China’s excess capacity in steel and aluminum production has driven down prices globally, as China has until recently encouraged its corporations and wealthy individuals to invest billions in overseas businesses and real estate. Lower prices and a stream of investment capital have fueled economic growth from Africa to America.

The United Kingdom’s vote in 2016 to exit the European Union a year from now has revealed how difficult it is to depart from a multinational economic arrangement. Currency exchange restrictions, foreign worker status, border crossings and trade are complex issues and, depending on final Brexit agreements, could crimp international investment in the UK, discourage immigrant labor and require a hard border with Ireland.

Trump officials say US steel and aluminum producers need protection because they are vital to American security interests, which is akin to developing countries defending tariffs to protect their infant industries. One challenge with selective tariffs is they have a habit of spreading. For example, Trump threatened to impose tariffs on European autos if the EU retaliated to his steel and aluminum exports.

Former US trade officials say the Trump tariffs violate international trade agreements and lead to litigation before the World Trade Organization. Trump might consider withdrawing from the 160-member WTO, but trade officials warn that could risk unraveling the global economic order, which dates back to the 1994 General Agreement on Tariffs and Trade. One of the GATT principles is preventing countries with excess capacity in a commodity from dumping products on the international market at below cost. Some have argued the United States should pursue an anti-dumping case against China. U.S. Steel argued for that approach as far back as 2016.

Trump’s call for tariffs surprised Republican leaders on Capitol Hill. Over the weekend on Face the Nation, South Carolina GOP Senator Lindsey Graham said Trump should reconsider imposing tariffs because they raise consumer prices and “let China off the hook.” “China wins when we fight with Europe. China wins when the American consumer has higher prices because of tariffs that don't affect Chinese behavior. If you want to affect China get back in the Trans-Pacific Partnership, be present in Asia, hit them on intellectual property theft, hit them on currency manipulation, hit them about steel dumping. China is winning and we're losing with this tariff regime.”

 

The Unintended Legacy of the GOP Tax Cut

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Lost in the hoopla over the GOP-backed tax bill that Congress passed and sent to President Trump are statistics showing a steadily expanding global economy.

While tax bill backers promise a domestic economic boom and Trump rails against unfair trade deals, the International Money Fund reports the global economy has grown this year by 4.2 percent. That doesn’t square with all the talk of protectionism. It also suggests that the United States may not be the only kid on the block.

One reading is that the world has become more economically integrated, regardless whether political leaders like it or not. That explains why many US corporations have lobbied against major changes proposed by Trump in the North American Free Trade Agreement or why the 11 other nations that signed the Trans-Pacific Partnership are still pushing ahead even though the United States pulled out.

PwC, a British economic consultancy firm, predicts 2018 will see another expansion of the global economy that is broad-based. One exception noted by PwC will be Britain, which is facing economic headwinds as it tries to negotiate its way out of the European Union following the Brexit vote.

The statistics don’t reflect the damage to regional economies and local communities caused by globalization. But they do reflect what appears like an irreversible force toward more globalization in trade for goods and services and in capital flows.

Conservative-leaning think tanks predict the GOP tax-cut bill will promote economic growth. The Heritage Foundation projects corporate tax cuts will add to US capital stock, but also lower the numbers of hours worked, presumably because of increased investment in automation. The Tax Foundation model, a reliably aggressive pro-growth calculator, predicts tax cuts will boost US Gross Domestic Product in 2018 from 2.01 percent to 2.45 percent, far less than Republican architects of the legislation predicted and not enough to offset the increase in the federal deficit.

U-Penn's Penn-Wharton model, run by a former Bush administration economist, forecasts the GOP tax bill will increase national debt by $1.9-$2.2-trillion by 2027 – after incorporating "dynamic" estimates of economic growth effects.

Amid skepticism the tax bill will stimulate domestic economic growth, many tax advisers think the legislation’s corporate alternative minimum tax provision will encourage more, not less offshore manufacturing. The deferral of tax on foreign income will provide an incentive to keep earnings from foreign operations offshore and to shift profits to offshore tax havens. Ironically, these provisions may bolster US-benefitted global economics.

In his national security speech this week, Trump warned of intensifying economic competition in the world. His solution: To look inward. The data suggests that’s old school. Obsessing about our border security and overlooking the very economic competition he called out in his speech is a strange brew and a broken policy.

When the tax-cut legislation finally passes this week, as expected, there will be a lot of high-fives and political backslaps. Congressional Republicans will have handed Trump his first significant presidential victory and kept a promise to GOP donors.

What may follow is a political uprising over the decidedly non-populist bent of the tax bill and, eventually, an even greater gasp when the tax legislation’s greatest advance is to speed automation and engage in even greater global economic integration. Ironically, that might turn out to be the legislation’s most lasting, if unintended legacy.

 

Managing Winners and Losers in Globalizing Economy

Globalization has produced winners and losers, which has soured many Americans and US policymakers on the undisputed benefits of free trade. The problem may not be trade, but the failure of US policy to keep pace with demands in a more competitive global economy.

Globalization has produced winners and losers, which has soured many Americans and US policymakers on the undisputed benefits of free trade. The problem may not be trade, but the failure of US policy to keep pace with demands in a more competitive global economy.

Based on the 2016 election, Americans seemingly soured on international trade. But that may not be an entirely accurate perception.

The election focused on workers dislocated by globalization. Less attention went to the benefits of trade, such as low-cost apparel and year-round fruits and vegetables. Foreign-sourced clothing has enabled American families on average to reduce spending on clothing from 7 percent to 3 percent of total household budgets.

Right or wrong, trade policies produce winners and losers. The losers received the attention in 2016, not inappropriately. US policies to compensate dislocated workers have been inadequate and, at times, non-existent. But that oversight does not override the everyday benefits that freer flowing international trade has brought to a broad swath of Americans.

Innovation Hub, an NPR program airing over the weekend, carried an interview with Edward Alden, author of “Failure to Adjust: How Americans Got Left Behind in the Global Economy.” Alden argues that America at large has benefitted from trade, but at the expense of some Americans who lost their jobs. The impact was predictable, as far back as 1971, but US policymakers have by and large dodged responsibility for finding ways to compensate trade losers, unlike many foreign contemporaries.

That responsibility, Alden says, includes both showing respect for dislocated workers and preparing the next generation to compete in a global economy.

Pete Peterson, an economic adviser to President Nixon, wrote a prescient paper in 1971 citing the upside of international trade and the dangers lurking in the future. He accurately predicted that some American workers would be left behind by globalization and implored for policies to prepare Americans for intensified global competition. You can’t say we weren’t warned.

“A program to build on America’s strengths by enhancing its international competitiveness cannot be indifferent to the fate of those industries, and especially those groups of workers, which are not meeting the demands of a truly competitive world economy,” Peterson wrote. “It is unreasonable to say that a liberal trade policy is in the interest of the entire country and then allow particular industries, workers, and communities to pay the whole price.”

Trump's Trade Pullout Roils Rural America

Today, trade has become a four-letter word. Republicans and Democrats have made protectionist arguments for border taxes, punitive penalties for US corporations moving manufacturing overseas and dumping or renegotiating trade agreements such as the Trans-Pacific Partnership. Nobody cried when President Trump withdrew from the TPP, even as China quietly stepped in to fill the void left by the United States.

That is exactly the point Peterson made in 1971. Much closer to World War II, Peterson could foresee the rise of a new generation of industrial leviathans, starting with Germany and Japan, which the United States helped to resuscitate. It may have been harder back then to project the economic rise of China, let alone Vietnam, India and Brazil.

Alden’s view aligns with Peterson’s. You can’t stop the ineluctable move toward globalization, but you have to adapt. Clinging to the past is like playing poker without ever looking at your cards. It also ignores the fundamentals of why globalization has advanced – trading partners are less likely to engage in war and free trade rewards the economy of advantage, whether it is technological innovation or low wages.

Trade pacts are intended to create rules that sufficiently even out advantages and disadvantages in bilateral or multilateral arrangements, but not necessarily to erase all disadvantages. Those disadvantages can be groups of workers or communities dependent on businesses on the decline.

Automation can amplify the perceived effects of globalization on job losses. Factories may remain in the United States, but employ fewer people because assembly lines are manned by robots. Remaining jobs are for people with different skills, such as running sophisticated machine tools or designing computer programs.

Digital technology has led to greater international integration, generating a flood of information flows that is reaching all corners of the globe. Information has become less proprietary and in many cases the cost of entry into business sectors has been significantly or totally erased, creating new waves of competition, such as outsourced tax preparation in India. There is evidence to suggest that cross-border data flows are becoming the most dominant form of international commerce.

One of the ironic twists of a more competitive global economy is the investment in the United States by foreign-owned companies. Asian and European auto makers manufacture vehicles in the United States, both to sell here and export elsewhere. Taiwanese-based Foxconn announced plans to build what it called a multi-billion-dollar manufacturing facility to produce Apple iPhones. It also has plans for an R&D facility in Michigan for self-driving cars. Chattanooga Tennessee sports two dozen foreign-owned companies that have helped lower the state’s jobless rate to 3.6 percent, a record low.

Traded goods are just a part of international commerce. The movement of capital, supported by financial services, plays a significant role. That’s why large banks are closely watching the details of Great Britain’s exit from the European Union, which could create barriers to service free-flowing capital. Data indicates financial flows have more than doubled since the beginning of the 21st Century.

Alden concludes that opposition to trade deals and globalization is the result of ignoring advice Peterson gave Nixon almost half a century ago. A more competitive world demands American keep its competitive edge, promoting innovation, investing in modern infrastructure, ensuring top-notch education and getting serious about retraining workers who suffer dislocation caused by trade (or by automation).

Today’s disillusionment with trade is linked to growing economic inequality, itself a reflection of a nonchalant attitude toward global competitiveness. People frustrated with their economic lot often blame immigrants. A better focus for their anger might be US policymakers who have failed to do what’s necessary to keep America competitive.

The Brexit Message for America

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

The Brexit vote sent shock waves throughout the world and raised questions about whether simmering anger over the effects of globalization could lead to Donald Trump winning the White House this fall.

The plummeting British pound and sagging worldwide stock markets provided an immediate warning sign of the portentous moment caused by the vote to leave the European Union. Prime Minister David Cameron’s decision to step down and allow someone else from his Conservative Party to navigate the departure confirmed the vote has clear political consequences.

But the anxieties reflected in Britain don’t exactly equate to those in the United States. While older, white Britons voted to leave, younger Brits voted to remain in the EU. Trump has won the hearts of older, white Americans, younger voters gravitated to Democrat Bernie Sanders.

A weekend editorial in the New York Times offered an explanation. Economically stressed working class voters blame their plight on trade deals that have profited corporations and banks, but cost them good-paying jobs and economic security. Younger voters feel the same stress and anger over income inequality resulting from a global capitalism, but see value in “economic integration, mobility and diversity.” They favor political action to fix, not flee from, economic dislocation.

There are material differences in the makeup and diversity of British and American voters that make analogies to the Brexit vote and the 2016 presidential election tricky at best. But the real lesson from Brexit may be the sharp distinction between how older alienated voters and younger anxious voters want to face the future. “Leave” voters in Briton yearned to a return when they fared better. “Remain” voters acknowledged problems, but seek forward-looking solutions.

Trump, who praised the Brexit victory while in Scotland to promote his golf course, is clearly pointing back in time to when “America was great.” The question is how Hillary Clinton can carve her message to resonate with those who want change, but not reversion to the past. The litmus test of her success will be how well she wins over the young voters who flocked to Sanders’ candidacy.

“The lesson for American voters,” the New York Times editorialized, “is to see their economic problems clearly, lest they be manipulated into voting against their own and their nation’s interests.”

Who wins the presidential race in November could come down to, as it has so often, a handful of swing states, several of which are in the Rust Belt, which have borne the brunt of the effects of globalization combined with technological changes and moves to reduce greenhouse gas emissions. Trump and Sanders have blasted previous trade agreements and strongly opposed the Trans Pacific Partnership negotiated by the Obama administration. Clinton, whose presidential husband steered through NAFTA, initially favored the TPP, but during the campaign dropped her support.

Opposing trade deals may appease older, alienated voters, but it may not be enough for younger, anxious voters. Opposing the TPP won’t stop trade, any more than Britain departing the EU will halt trade, even if new tariff barriers are erected. So the forward-looking question may be how to take into account and address the inevitable dislocations from globalization.

This question will be of consuming interest to voters in Ohio and Pennsylvania, but it should be a top priority for the entire country because economic dislocation knows no boundary. In Oregon, many rural communities remain in economic distress because of changing policies on timberland management.

The nation would benefit from a robust, candid conversation about how to cope with the side effects of globalization, not hide from them.

Gary Conkling is president and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at  garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.

Taking the Political Bite Out of Trade

Opposition to international trade deals has welled up in both presidential primaries, but few realistic proposals have surfaced to address worker security in the face of unstoppable globalization and technological change.

Opposition to international trade deals has welled up in both presidential primaries, but few realistic proposals have surfaced to address worker security in the face of unstoppable globalization and technological change.

International trade deals have been trashed by presidential candidates in both parties, but realistic alternatives that would do more good than harm have been scarce.

Economists admit globalization of manufacturing and distribution, huge cross-border capital flows and accelerating technology changes have taken their toll on jobs and job security. However, they warn scrapping trade deals and trying to erect trade barriers will create worse economic problems without protecting workers they seek to shield.

A better approach, according to economists, is to increase support, especially in terms of job training for workers who lose their jobs because of globalization or trade deals that favor some sectors at the expense of others.

The Trade Adjustment Assistance program exists to provide that support, but is woefully funded compared to dislocated worker programs in other industrialized nations. It also isn’t very practical. The program pays for job training, but unemployed workers still need to earn money to pay a mortgage and put food on their family table.

Increasing funding for Trade Adjustment Assistance hasn’t been a political priority, but the deep discontent that has welled up by working class families all across the nation, as reflected by their votes for “outsider” presidential candidates strongly opposing trade deals, may change that.

Another idea kicking around in economist circles is called wage insurance. This involves wage subsidies to workers who lose their jobs so they can afford to take lower-paying jobs while obtaining job training. President Obama mentioned wage insurance in his final State of the Union address earlier this year.

Bolstering the Trade Adjustment Assistance program or enacting some type of wage subsidy doesn’t have the same raw appeal on the political stump as GOP frontrunner Donald Trump saying he will cut better trade deals with China, Japan and others. But his promise, based largely on his negotiating skill as a hotel developer, may not be worth the risk of a costly trade war that triggers a global recession.

Democratic contender Bernie Sanders has criticized former President Bill Clinton for pushing through the North American Free Trade Agreement, which has resulted in the transfer of U.S. manufacturing jobs to Mexico. Both he and Democratic frontrunner Hillary Clinton have expressed opposition to the Trans-Pacific Partnership, a key Obama priority. But neither Sanders nor Clinton have articulated a clear alternative to the TPP, which Obama defends as a roadmap for economic development in the Pacific Rim written by the United States, not China.

Free trade policies have been problematic for labor-backed Democrats and now appear to be a challenge for big business friendly Republicans, too. Protectionism also faces headwinds because American consumers are savvy enough to know that would mean higher prices for goods. Businesses, farmers and workers in states like Oregon and Washington that have export-dependent economies realize protectionism would hurt them.

As a result politicians on both sides of the aisle may be forced to pursue policies that produce tangible improvements for middle-class workers who have been and likely will remain vulnerable to new economic realities.

It is one thing to rail about trade policy on the campaign stump (Obama certainly did in his 2008 campaign), but it is another to stare at the hard realities. The United States remains the dominant world economy, but it no longer commands a position where it can call all the shots. The global economy is more intertwined so a hiccup on the Chinese stock market or refugee flows into Europe can impact the U.S. economy.

Just about everyone has a stake in figuring out trade policy. It may be the most fundamental middle-class American issue. It matters to young people who must navigate careers that don’t have life-time job guarantees. Those at the top of the economic heap may face growing unrest and a sharper shift to the political left if more isn’t done to provide greater job security to a growing group of Americans.

Activist labor programs could be the best defense against worker frustration, the least statist policy and the most popular political talking point. There is a general election coming up this fall to try out this approach.

Opponents Line Up for Pacific Trade Pact

Negotiators wrapped up a framework for the 12-nation Trans-Pacific Partnership, but the trade deal may face substantial opposition in Congress in an election year from a loose coalition of labor, environmentalists and disgruntled industry. (Communication Workers Union)

Negotiators wrapped up a framework for the 12-nation Trans-Pacific Partnership, but the trade deal may face substantial opposition in Congress in an election year from a loose coalition of labor, environmentalists and disgruntled industry. (Communication Workers Union)


Negotiators have agreed on the framework of a 12-nation Trans-Pacific Partnership trade pact, which if approved could give President Obama a second major international achievement following the Iranian nuclear deal.

Obama touted the trade pact as a policy tool to strengthen U.S. influence in the high-growth Asia Pacific region, as well as a way to box in the rising economic ambitions of China. The TPP was a central element in Obama's pivot to the Pacific strategy, which has continually been interrupted by turmoil in the Middle East, Russian moves against Ukraine and the rise of ISIS.

Even though a GOP-led Congress gave Obama so-called fast track authority to negotiate the TPP and limit Congress to an up or down vote, the treaty's prospects appear uncertain. While there is a lot for various groups to like in the trade treaty, strong objections persist from labor, environmental and industry groups. Because the vote on TPP won't occur until next spring, opponents will have ample time to make their case.

The Washington Post provided a sampler of discontent. U.S. automakers, it reported, complain the TPP doesn't prevent currency manipulation by Japan that suppresses its car prices in the American market. Drug manufacturers wanted intellectual property protection for their biologic medicines to last for 12 years, but TPP only extends protection for eight years.

Environmentalists worry about investor-state dispute settlement (ISDS) provisions, which they say could "empower big polluters to challenge climate and environmental safeguards in private trade courts." On the flip side of that coin, tobacco companies are upset they are apparently excluded from the TPP settlement provisions, a similar form of which they used successfully to block anti-smoking rules in Australia.

The most fervent opposition to the trade deal comes from organized labor, which says prior trade deals have cost American jobs. Labor officials, who opposed fast-track negotiating authority, complain that TPP negotiators made "problematic concessions" to gain approval of the treaty.

The previous high-profile vote on fast track authority may or may not prove a reliable guide to how the up-or-down vote on the treaty will look. The shakeup in House GOP leadership, which could produce a rocky road in the next six weeks on major policy issues, could have undetermined impacts on the political alignment for the trade deal. Fast track authority prevents the Senate from filibustering the trade deal, which could force senators running for re-election against formidable opposition to pause on how they vote.

Glass-half-full observers say a potential defeat of the treaty in Congress could actually strengthen Obama's hand at the negotiating table, winning concessions he failed to get in the just concluded negotiations.

The lineup of issues this year in Congress, amid a still swirling presidential primary in both political parties, probably means the TPP won't attract much media attention. That's a plus for treaty detractors who can work in the shadows.

That could obscure a principled debate on key TPP provisions, such as ISDS. A separate Washington Post analysis offers useful background about prior investment treaties with settlement provisions similar to the one in the TPP. It notes, for example, that ISDS procedures allow corporations to sue governments in international courts, but governments aren't allowed to sue corporations, which some criticize as "one-way rights"  and a threat to the legal and regulatory sovereignty of nations.

Corporations have prevailed in some filings, though none have been upheld against the United States, but that political defense may not be enough to fend off arguments from Democrats such as Senator Elizabeth Warren. Labor officials say this will lead to increased "nationality shopping," with pressure on countries to weaken regulations to hold onto or recruit job-producing industry.

Another factor in the ISDS debate will be the sheer number of international investment treaties (3,200 at last count) with varying standards and rules that tend to favor corporations. 

Tags:    Trans-Pacific Partnership, fast track authority, ISDS, trade deal opposition, President Obama, second international achievement, nationality shopping, free trade, CFM Federal Affairs