USBIC: Domestic Manufacturers: Many Phony Arguments used by TPA Proponents

June 24, 2015


Contact Kevin L. Kearns: 202 957 9994 (cell); 202 266 3980 (office)

Domestic Manufacturers:  Many Phony Arguments used by TPA Proponents  

Several key points to remember as the Senate considers TPA today:

[Reposted from the USBIC site  |  Kevin Kearns  |  June 24, 2015]

1 — 95 percent of the world's consumers do not live outside the United States.  80 percent of the world's population lives on $10 a day or less.  These people are not consumers in any sense that the American people would understand.

2 — TPA does not put Congress in 'the driver's seat.' The TPP is largely finished.  Any negotiating objective set by Congress are merely advisory and don't have to be included in the TPP. By voting for TPA, the Congress gives up all control over the content of the TPP and thus puts the Obama administration in the driver's seat.

3 — We do not have 'trade surpluses' with our 'free trade agreement partners.' We do not have a trade surplus with NAFTA.

These are false claims put forth by TPA/TPP proponents. We have 20 FTA partners.  We have trade surpluses with 14, but trade deficits with 6 — Canada, Mexico, Korea, Israel, Nicaragua, and Costa Rica.  The point of amalgamating all FTA partners into a single group and claiming that we have a surplus is to imply that the TPP, TTIP and other trade agreements will magically result in a trade surplus for the United States.  This is completely phony logic, and is revealed as such by examining the countries involved.

If a free trade agreement 'automatically' results in a surplus, then why do we have a substantial and growing trade deficit with Korea? Or Mexico?  Answer: countries are different and there are different economic dynamics.  FTAs do not automatically produce surpluses.  TPP will not automatically produce surpluses with say Vietnam, Malaysia, or Japan.

The claim of an FTA partner-trade surplus is based on phony accounting.  First, the trade deficit in oil and gas is removed by TPP proponents — but there is no valid reason to do so.  We are in deficit in oil and gas with Canada and Mexico.  We still have to pay for the oil and gas, just as is the case with any other import.  Historically, oil and gas are counted as part of our imports. Excluding the accounts to try to achieve trade surpluses is dishonest.  

We have a goods trade deficit with Mexico but a surplus with Canada.  By removing oil and gas and combining Canada and Mexico in NAFTA, proponents obscure the merchandise trade deficit with Mexico to dishonestly try to advance their case for trade surpluses produced by so-called free trade agreements.

Points for further consideration:

— TPA does not put Congress in the 'driver's seat." While it may contain negotiating objectives for the TPP trade talks, the talks are close to conclusion and the objectives are unlikely to be included, and in any case are merely advisory.  The only way to ensure that the objectives are included in TPP is for Congress to maintain its ability to amend the TPP through regular order.

— Globalization is not a law of physics, but has come about through a series of deliberate policy decisions made in Washington, often disregarding the will of the American people. It does not have to be here to stay in its current harmful form. Globalization to date has caused the loss of millions of jobs, thousands of factories, and even entire industries.  It is up to Congress to reshape globalization in the interest of the American people and not continue headlong into the globalization abyss.  

— More trade is not necessarily a good thing, although that phrase is widely parroted on Capitol Hill.  Trade is a means to an end, and that end should not be an abstraction, a more efficient working of world markets, but rather a concrete good, and that is a higher standard of living for the American people.  To date, trade has not achieved that result given the substantial and ongoing trade deficits of the United States, and the grotesque income inequality that has resulted.

— The United States has incurred massive debts paying for its imports; these debts are a blight on growth and will have to be serviced or repaid by current and future generations. The goal of US trade policy should be at a minimum balanced trade. The current TPP will not achieve balanced trade.  There has been absolutely no discussion on the part of TPA/TPP proponents of how TPP will bring down our sky-high trade deficits and balance our trade. There is a good reason: It won't.

— Since TPA can be rammed through Congress at will, one wonders why it is necessary in the first place.  Presumably, TPP can be rammed through without any amendment process as well.

Also one wonders if TPP is so beneficial, why have so many misleading statements been made to support it? To wit:

— The president often calls TPP the most progressive trade agreement ever. So?  It allegedly raises labor and environmental standards.  The AFL-CIO says it has been largely ignored in the TPP process. Michael Wessel, an advisor to the Steelworkers Union, has seen the labor provisions and says they are inadequate. In any case, even sky-high labor standards won't raise the wages of workers in countries like Vietnam to American levels.  If compliance with TPP labor standards doubles Vietnam's wage from 60 cent and hour to $1.20 an hour, does that create a level playing field for American workers?  The same with environmental standards.  And, by the way, the enforcement of labor and environmental standards is up to a country's government.  Does any Member of Congress seriously think that the Communist Politburo that governs Vietnam is going to hamper its economic growth by running around the country looking for labor or environmental standard violations.

— It is often alleged by TPP proponents that 95 percent of consumers live outside the United States. Yes, 95 percent of the world's population lives outside the US, but they are not consumers in any sense that Americans understand.  80 percent of the world's population lives on $10 a day or less. These unfortunate people are not consumers. They live below, at, or slightly above the poverty line.  They have no disposable income. They will not be buying any American-made products.

— The 95 percent argument shows that American companies are chasing the chimera of lucrative foreign markets where none exist, but worse are ignoring the still rich but declining American market.  While foreign corporations make huge inroads growing their market share in the American market, US corporations chase non-existent costumers abroad.  Importantly, these foreign, government-backed corporations often use currency manipulation and VAT tax rebate schemes to lower the prices of their products to gain market share here.  Since the US government won't put an end to these unfair trade practices — and TPP does not include effective currency disciplines or any VAT disciplines,  American corporations have convinced themselves that their salvation and that of the American economy lies in exports to phantom consumers in non-existent markets.

— TPP proponents often claim that it is the gateway to "fast growing Asia markets." There are several problems with this statement. First, Asian markets are growing from a very low base.  So even a little real growth looks inflated in percentage terms. Second, China and many other Asian markets have seen their rate of growth fall off recently.  The trend of somewhat lower growth will continue for some time. Third, the higher growth seen in Asia is often the result of the transfer of American factories and jobs through offshoring.  Fourth, the same claim was made in regard to the Chinese market when the debate over PNTR for China occurred prior to the debate in 2000-2001 in the US Congress on China's accession to the WTO.  American access to the Chinese market has been troubled, halting, and certainly not the panacea it was held out to be.

— If the United States took appropriate steps to prevent trade cheating — which the TPP does not — and to secure fair treatment for our own producers in our own market, the American economy would be growing a lot faster, almost as fast as the alleged 'superior' Asian markets.  The fact that the US economy is not growing sufficiently fast is the fault of successive administrations and congresses, which have ignored major obstacles to American growth both in terms of barriers at home (e.g., a dysfunctional tax code) and structural and policy barriers abroad (e.g., currency manipulation and VAT schemes).  The lesson in all the misstatements and phony claims about the TPP is that we are not concentrating on the market that is the most promising and that matters most to the American people — the American market.

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