Withdrawing the U.S. from the Trans-Pacific Partnership doesn’t help businesses in Washington state. It also marks a fundamental shift in American trade policy that doesn’t guarantee America will be first.
Mike Gilmartin hardly fits the image of a Davos-attending, jobs-offshoring plutocrat who supported the Trans-Pacific Partnership.
Instead, he’s president of Spokane’s family-owned Commercial Creamery. The company was established in 1908 and makes cheese flavoring.
With about a dozen people at headquarters, it also employs 125 at its Idaho factory. If you enjoy cheese snacks or mac and cheese, chances are you also like Commercial Creamery’s cheese powder.
Yet like many Washington companies, Commercial Creamery is a participant in global trade. It exports to 30 countries, and Gilmartin said overseas sales contribute as much as 35 percent of company revenues.
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Gilmartin supported TPP, the 12-nation trade deal from which Donald Trump formally withdrew the United States this past week.
“Nobody said TPP was a perfect agreement,” Gilmartin said. “My argument was a little bit was better than nothing.”
He was especially hoping that TPP would improve dairy exports to Canada, something NAFTA didn’t accomplish.
TPP was also backed by Derek Davenport, general manager of Allied Potato Northwest, which farms 4,000 acres near Pasco, in the heart of Trump country.
Some 40 percent of Davenport’s potatoes go overseas, mostly to Asia but also to Central America. One big benefit of TPP was a significant lowering of tariffs by Japan.
“I don’t know what’s going to come about, but we’re going to continue shipping,” he said. “I hope cancellation won’t hinder us.”
Therein lies the conundrum of TPP. Going through with it would have created some losers in the United States. Canceling U.S. participation — Hillary Clinton, under pressure from the Bernie Sanders wing of her party, would have done the same thing — hurts other Americans.
Lori Otto Punke, president of the Washington Council on International Trade, said TPP might have added 26,000 jobs in the state and increased exports by $8.7 billion a year.
For context, Washington’s total nonfarm workforce was 3.3 million in December. Total exports were $86.4 billion in 2015.
This marginal gain, if all worked out, was one of TPP’s many liabilities. Its supporters in the Obama administration relied on models that estimated the agreement would increase the U.S. economy by 0.5 percent by 2030.
That’s not much when confronted by strong anti-globalization sentiment on the right and on the left. And based on our experience with previous managed-trade agreements (not “free trade”) such as NAFTA, some American workers would have been displaced.
But it’s impossible to prove how much, if at all, TPP would have been a job killer or wage suppressor. The influential University of California, Berkeley economist Brad DeLong, writing in Vox, argued it would not have been.
TPP did provide robust intellectual-property protections, which would have greatly benefited American tech companies. But these are “elites” — out of fashion today, even though they are a backbone of the Puget Sound region’s economy.
How much will cancellation hurt companies such as Microsoft? Or diminish Boeing’s future orders in TPP signatory countries (the Machinists union supported withdrawal from TPP)? It’s impossible to know yet. The United States already trades with the TPP nations, so the improvements — and dislocations — would have been mostly at the margins.
Mostly, but not entirely. The agreement’s “high standard” for labor and environmental protections would have translated into substantial improvements, especially in developing countries.
We’ll see how much of the TPP benefits remain in the backup Regional Competitive Economic Partnership, a proposal comprised of Asian nations.
In reality, TPP was more of a strategic than an economic imperative for the United States. It was intended by the Obama administration to reassure allies and partners at a time of rising Chinese power. It was also continuing decades of American leadership in knitting together the world in peaceful, rules-based trade.
Here, the damage may be greater, depending on what the United States does next. TPP’s demise is part of a larger, tectonic shift. Economics commentator Martin Wolf, writing in the Irish Times, says Trump’s “America First” is akin to a declaration of economic war.
“Who would have imagined that primitive mercantilism would seize the policymaking machinery of the world’s most powerful market economy and issuer of the world’s principal reserve currency?” Wolf asked. It’s an important question.
Speaking of Davos, a speech there by Jack Ma, founder of Chinese e-commerce giant Alibaba, urged Americans to look in a mirror rather than blaming foreigners for their economic disappointment. Trillions of dollars spent on wars or siphoned up to Wall Street could have been invested in infrastructure and creating American jobs, he suggested.
“It’s not (that) the other countries steal jobs from you guys — it is your strategy,” Ma said.
One could add that average Americans contribute to the problem by having an abysmal savings rate and buying more goods from overseas than they can afford.
Another shift at the World Economic Forum at Davos was the attendance by Chinese President Xi Jinping. His speech there was a strong endorsement of globalization, comparing protectionism to “locking oneself in a dark room.” China is also moving aggressively to build trade agreements and expand its influence.
To be sure, China can play outside the rules. Currency manipulation is less of a problem than its stealth protectionism on strategic industries, its demand that foreign companies locate factories there, and the obscure rules it uses to keep out some products from abroad.
In the 19th and early 20th centuries, Republicans believed America’s national interests were served by a strong tariff. That changed after World War II, and both parties spent decades building today’s world trade system.
After last week, we’re in dark territory.