The Trans-Pacific Partnership Is About Much More Than Trade

The US congressional debate over granting Trade Promotion Authority (TPA) to the executive branch has been raging over the past few months. The TPA is a prelude to a vote on the Transpacific Partnership (TPP) agreement, which would bring together 11 Asia-Pacific economic partners with the United States in the world's biggest free-trade agreement and would open the door to additional global economic initiatives. While anti-trade groups consider the TPP to be a dangerous "corporate grab," others see it as much ado about nothing because the agreement is expected to have small effects in the aggregate. But make no mistake about it: The TPP is, indeed, a big deal and failure to approve the TPA would be a colossal mistake that could set back the US role in the region and the world-both economically and strategically-for a long time.

Now, those who believe the TPP will not have a large effect on the economy in the aggregate are correct, despite the Chicken-Little-like prophesies of the anti-trade groups. But it couldn't be any other way: the US economy is not nearly as exposed to the international marketplace as the vast majority of other countries in the world. Production is mainly focused on services, which in turn are mostly produced and consumed at home: about 90 percent of the US labor-force works in services, with only 8 percent in manufacturing and 2 percent in agriculture. Yet, where trade is important there will be a substantial, positive effect. Modelling work I've done together with my colleagues Peter Petri and Fan Zhai suggests that the TPP will ultimately raise US real incomes by $77 billion per year by 2025. The benefits will extend across the economy through higher wages and lower prices. We do not calculate an increase in the number of people at work - our economy cannot add jobs permanently once it reaches full employment - but by 2025, around 650,000 more people should be working in export-related jobs that pay as much as 18 percent more than jobs in import-competing industries. The competitive industries in the US will expand and others will contract, but all will have 10 years or more to adjust, giving companies and workers time to adapt. Pro-active policies targeted at the most vulnerable can facilitate this adjustment and minimize the costs.

Still, it is a mistake to see the TPP as an end in itself rather than what it really is: a means to reassert the United States as a global leader of international commercial policy and deepen mutually-beneficial links with the Asia-Pacific and the world. The TPP is a modern, "21st Century" trade agreement dealing with key issues relevant to the future of industries in which the United States is the most competitive, from financial services to high-tech electronics. The chapters covered are often highly complicated (from non-tariff barriers to restrictions on state-owned enterprises), which explains why the United States Trade Representative has taken over 6 years to negotiate it. But the truly big economic gains will accrue when the TPP expands or merges with other initiatives in the Pacific region, such as APEC's Free-Trade Area of the Asia-Pacific (FTAAP), which is slated to begin negotiations in 2020. We estimate the gains from the FTAAP to the United States to be almost four times that of the TPP, with exports rising by more than 20 percent relative to what would have been the case otherwise. Thus, the TPP should be seen as part of a process through which the United States can take a leading role in addressing cutting-edge commercial policies, as well as a vehicle through which the United States can boost growth.

While the TPP constitutes an important part of the Obama Administration's "Asian pivot," in fact it is more of a continuation of past US policies rather than a discrete change in direction. Given the region's rising economic importance, APEC was established in 1989 under the (George H.W.) Bush Administration, and in 1993, under President Clinton, APEC proclaimed the goal of creating a region of "open trade and investment" by 2020; the (George W.) Bush Administration launched the "Enterprise for ASEAN Initiative" to cement closer relations with Southeast Asia, including a free-trade area with Singapore and free-trade area negotiations with Thailand and Malaysia. Thus, the economic aspect of the "Asian pivot" has not only been a priority of past Administrations but also a bipartisan one.

Despite the strong economic case to be made for the TPP, arguably strategic issues are at least as significant. Indeed, it is difficult to separate economic from strategic issues in Asia. With the "Pacific Century," Asia is becoming increasingly important to the economic welfare of the United States; maintaining balance and stability in this multipolar region is of the essence. US engagement in Asia is welcome, but it needs to take a new approach to security, one with a greater focus on economic cooperation than has been the case in the past. The TPP is an excellent way to move forward as a first step in the process. For example, while China is not currently a negotiating partner in the TPP, it has been warming to the idea of possibly joining, and it stressed the importance of the FTAAP at the most recent APEC Summit in Beijing last year. Our modelling work suggests that the biggest gains to the United States-and China-occur when they both come together in a free-trade area. This type of economic cooperation in the longer term would serve to reduce bilateral tensions and would have important knock-on effects in terms of promoting regional stability, particularly if India could eventually be brought on board (it currently is not a member of APEC). Economic integration raises the cost of conflict and, hence, mitigates in favor of peace and stability.

Should the United States be unable politically to pass the TPP soon, it will continue to lose influence and it will be natural for the entire region to doubt the US ability to stay engaged and be an effective, reliable ally. There is in the works an Asia-only free-trade arrangement called the "Regional Economic Comprehensive Partnership" (RCEP) that is currently at an early stage of negotiations, and the United States has decided to opt out of the Asian Infrastructure Investment Bank. It is not in the interest of the country to be on the outside looking in.

Thus, Congress should not deceive itself into thinking that this vote is merely about a trade agreement; it is much more. Passage of the TPA will help the Administration position the country as a leader in the Pacific Century and the global economy; failure to do so will not merely forego economic gains but actually will contribute to a decline in US influence. Congress needs to put politics aside and vote in favor of America's future.