The TPP is likely to empower China in the long-run

yuanPresident Obama apparently recognizes that China’s rapidly growing economy and military pose significant problems for the US and the rest of the world. In response, he urges swift passage of the Trans Pacific Partnership (TPP). “If we don’t write the rules, China will write the rules out in [the Trans-Pacific] region” Obama warned in a Wall Street Journal interview. That outcome would mean: “We will be shut out—American businesses and American agriculture. That will mean a loss of U.S. jobs.” The President’s analysis is flawed.

China’s economic rise since 2000 stems directly from a massive net influx of American capital due to its remarkably favorable trade balance. This results from several interlocking factors: (1) China’s ownership of vast stores of natural resources around the world coupled with (2) its enormous and very cheap working class enable manufacturers there to produce finished products for the US market at a cost domestic producers cannot match. (3) China’s undervalued renmimbi (RMB) exacerbates the American cost disadvantage. The Chinese Communist Party’s ongoing practice is to buy dollars with RMB thus driving the dollar up relative to the RMB.

There is nothing in the TPP that addresses any of these factors. The TPP does not confer upon developing countries like Vietnam any significant competitive advantage that they do not already possess vis-a-vis China. For example, the TPP does not significantly reduce any tariffs protecting the US manufacturing sector from predation by producers in signatory nations.

The TPP does not address currency manipulation. Of course, even if it did, that would mean little with respect to China since it is not a party to the TPP negotiations. Likewise, it appears that the TPP does not preclude its members from entering into exclusive sales agreeements with respect to natural resources with particular countries. So China’s ongoing efforts to corner various natural resources will likely continue unabated.

The President claims that if we don’t help write the rules governing commerce along the Pacific rim in Asia, China will. It is unclear what specific rules the President fears. Moreover, it is hard to see how any economic rules China imposes on poor Southeast Asian nations would materially benefit what may already be the world’s largest economy. China’s muscle comes from its three-headed hydra of cheap labor, cheap raw materials, and cheap currency coupled with nearly unfettered access to US markets. New rules governing Vietnam and Malaysia won’t change this.

The TPP will likely lead to the loss of even more American jobs due to rollbacks of U.S. regulations “in areas such as food safety, banking and finance” that currently prevent some overseas goods from reaching our shores. But it will not materially undermine the commercial advantages that China currently enjoys nor is it likely to stymie Chinese military designs in the region. The upshot of an approved TPP is more American jobs lost to the far east with little direct economic impact on China.

While enacting the TPP is not likely to hurt China directly or thwart its geopolitical plans, long-term it will almost certainly benefit the totalitarian nation. Ultimately, only the United States can restrain China. Yet, its economic gains at our expense have financed massive military expansion and reduced American containment capabilities. A weaker US economy, more dependent than ever on cheap imported goods, may make Chinese hegemony in east Asia inevitable.

This entry was posted in Uncategorized. Bookmark the permalink.

3 Responses to The TPP is likely to empower China in the long-run

  1. Shade 2 says:

    Your statement: “But it will not materially undermine the commercial advantages that China currently enjoys nor is it likely to stymie Chinese military designs in the region.”

    I think Obama’s hope is that the growing demands of China’s growing middle-class will make it hard for them to compete with the TPP. The current Chinese middle-class will not be very understanding of their government if they now don’t get the goods and services they have become accustom to. Thus the agreement’s downward pressure on prices is likely to mean less money that the Chinese will be able to invest in their military &/or to invest in the third world (without risking political upheaval).

    Will it work? I don’t know. However, I don’t think Americans are are likely to lose many manufacturing jobs over the TPP – that train left the station a long time ago. The TPP will primarily steal “unskilled” jobs from the Chinese, especially in the first decade or more. In the longer term, I don’t believe it is realistic to forever protect U.S. workers such that they will never need to compete in global markets. The hope in the long term for the U.S. worker is that the rising tide for all countries will have a tendency to raise our boats too and we will find our niche.

    What could we do different? Long ago we should have put tariffs on imported Chinese goods to more fairly level the playing field. I’m not sure this is a viable option anymore given our weak economy & our working-class now being so addicted to cheap Chinese goods. Worse, the Chinese, having a virtual monopoly (at this time) could retaliate.

    Don’t get me wrong. I’m not a big fan of the TPP. As I spelled out here: http://halginsberg.com/the-tpp-is-a-bad-deal/#comment-5303, I recognize its many pitfalls. I just also recognize that there are a few advantages to the U.S. of this agreement. The agreement has the potential to weaken China a bit without risking the Chinese suddenly and sharply raising prices on our consumer goods. It would likely be hard for the Chinese to retaliate against the U.S. for negotiating this agreement, as we have done nothing to hurt them except to merely give other countries something we have essentially already given them. Retaliation to this agreement would thus make the Chinese look bad in the court of world opinion. To date, the Chinese have chosen to remain virtually mum on the TPP, so I suspect they intend to just take the agreement in stride and adjust.

    Personally I would like to see an agreement negotiated that is more fair to the U.S. worker/consumer (not to mention the environment). I think this might happen if the negotiations were more open to public critique. On the other hand, an openly negotiated agreement would probably be equally likely to result in the agreement being scuttled by numerous special interest demands.

    The only difference between you and I on this agreement is that I am just a bit more open to the idea that the upsides to the TPP might be worth a few of its downsides. I truly believe that global markets and fair trade will ultimately raise all boats, and the interdependence such trade creates will serve to lessen the likelihood of wars. That said, I do not support the agreement as I understand it currently exists.

  2. halginsberg says:

    The TPP is unlikely to make the low-wage Asian nations, Malaysia and Vietnam, who are party to it, more attractive than China to companies currently operating there. It is likely to siphon more jobs from the US thereby weakening our ability to constrain China.

  3. halginsberg says:

    Regarding the claim that the TPP will allow its low-wage members to “steal” jobs from China:

    “China will benefit directly from the Pacific deal itself given the weak rules-of-origin clauses, according to a leaked version of the negotiating text posted on WikiLeaks in November. Though Froman is quick to note that none of these provisions is set in stone yet — negotiators are hoping to nail down a deal before President Barack Obama’s visit to Asia in April — if the draft version stands, a car built in Malaysia with 65% parts made in China could still be considered Malaysian. Given the vast amount of manufactured goods and parts China supplies virtually all 12 of the Pacific countries negotiating the free-trade deal, it will almost assuredly benefit from increased sales if and when the pact is ratified.” http://swampland.time.com/2014/01/14/why-trying-to-hurt-china-in-the-trade-game-could-backfire/

Leave a Reply to halginsberg Cancel reply

Your email address will not be published. Required fields are marked *