The Importance of the Trans-Pacific Partnership (TPP)

Democrats in the House of Representatives dealt a major blow to President Obama's trade agenda Friday by torpedoing legislation that would grant him Trade Promotion Authority (TPA). The President wants TPA reinstated in order to push through the Trans-Pacific Partnership (TPP), a 12-nation trade deal aimed at boosting the US economy and checking China's power in Asia.

Before diving into TPP, behind which Gen. David Petraeus threw his support on today's Wall Street Week, let's start with an explanation of the acronyms involved in the battle on Capitol Hill.

Trade Promotion Authority (TPA) is “fast-track” authority, granted by Congress, allowing the President to negotiate international trade agreements. TPA cedes the President broad powers to negotiate trade deals, but also gives Congress the ability to approve or deny any agreement. It does not, however, allow Congress to negotiate or amend deal terms.

TPA went into effect with the passage of the Trade Act of 1974, but expired in 1994 upon the creation of the World Trade Organization. It was re-instituted by the Trade Act of 2002 but has been dormant since lapsing in 2007 (with the exception of pending agreements). In 2012 the Obama administration began seeking its renewal in order to pursue the Trans-Pacific Partnership (TPP). Without TPA, chances of enacting the TPP are slim.
 
The TPP has been under negotiation for a decade, but the US only joined the fray in 2009. Notable parties to the agreement, which would become the largest free trade pact in the world, include Canada and Mexico in North America, Chile and Peru in South America, New Zealand and Australia in Oceania and Japan and South Korea, among others, in Asia. While most of the details of the proposed agreement remain under wraps, as is typically the case with the negotiation of trade deals, it is expected to eliminate tariffs and other barriers to trade while synchronizing regulation.
 
The partnership has one notable absentee, China. The Chinese government exploited its inclusion in the WTO for the last 30 years in order to put its booming population to work and transition from an agrarian to urban manufacturing-based economy. China has been able to enjoy such substantial benefits from free trade because it violates fair trade provisions. In particular, an artificially cheap Yuan has suppressed wages in the rest of the world for decades.
 
The US is pushing for more stringent rules in the TPP relative to those set forth by the WTO, a belated effort to hold China accountable and contain its rise. As a result, Chinese officials are hesitant to jump into the agreement at a late stage and risk exposing the country’s fragile industrial economy to greater global competition.
 
Deep-seated tensions between China and regional foe Japan, not to mention the United States, have also bubbled to the surface over the last several years, creating geopolitical incentives to finalize the TPP. A strong trade agreement would strengthen existing security alliances in the Asia-Pacific region.
 
On Wall Street Week, retired US Army General and former CIA Director Petraeus stressed the dual importance of granting TPA and enacting the TPP: “[I am] very, very supportive of it, and for two reasons,” he said. “There is the economic argument for it, but probably even more important than that is actually the national security, diplomatic and geopolitical argument for it”.

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The goal of TPA is to increase the competitiveness of US exports, but detractors liken TPP to the North American Free Trade Agreement (NAFTA), a deal they say eliminated hundreds of thousands of American manufacturing jobs and put long-term downward pressure on American wages.

Liberal politicians typically oppose free trade because they are supported by labor unions who believe such agreements harm American labor. As the US jobs market has slowly recovered, so with it has American workers’ sense of leverage against capital. Calls to unionize have reemerged as labor tries to seize the opportunity to further consolidate bargaining power.

Rising income inequality due to stagnant wage growth has no doubt damaged the fabric of the American economy and society, but calls for greater unionization ignore underlying causes of the pay gap and solutions for restoring labor’s share of the national income pie.
 
The free trade debate has never unfolded along traditional party lines. NAFTA was originally proposed by Ronald Reagan, but was championed and passed by Bill Clinton, who pushed the bill through Congress mainly on Republican votes. President Obama is pinning successful renewal of TPA on a similarly right-lane drive. The President’s main allies on the trade deal are two of his most frequent adversaries – Republican Representatives John Boehner and Paul Ryan.

The President's trade agenda suffered a major setback Friday, but understanding why requires a technical review of the legislation. Trade Promotion Authority (TPA) has always been a package deal in Congress with Trade Adjustment Authority (TAA), a provision supported by progressives to offset negative effects of free trade on American labor. Labor-backed Democrats oppose TPA and free trade but, if its going to exist, support TAA. Conservatives support TPA and the TPP, but generally oppose the TAA provision.

The Senate voted in May to pass both TAA and TPA, and thus the House needed to pass the same version of legislation in order for the bill to make it to the President's desk. But on Friday House Democrats used a clever, albeit cynical, tactic to at least delay the TPP - they torpedoed the provision they support, TAA, once they realized there were enough votes to pass the one they oppose, TPA, because defeating TAA rendered the subsequent vote on TPA purely symbolic. Democrats in the House joined forces with unwitting Republicans, who all-along opposed the assistance component of the trade package, to deliver a crushing 302-126 blow to the President.

President Obama spent considerable time and effort lobbying support from his traditional supporter base in Congress, but faced a revolt within his own party - a development that could be the first step toward a lame duck presidency. He, along with his improbable Republican cohorts, will need to devise a new plan for getting TPA, and thus TPP, through Congress, or else, as Gen. Petraeus said, the United States could be "finished" in Asia.

This article originally appeared in the June 14, 2015 issue of the Wall Street Week Newsletter