Why We Sign Bad Trade Deals

Most of the damage done to U.S. manufacturers by the federal government has been through the implementation of unbalanced trade deals.  Keep in mind that this is coming from someone who was at one time an ardent free trader, and even testified before a U.S. Senate sub-committee in support of NAFTA, declaring that it had not gone far enough.  Why my turnaround?  To quote the economist Paul Samuelson, “Well, when events change, I change my mind.  What would you do?”

We enter into trade agreements under the presumption that they will lead to higher exports and lower priced goods for U.S. consumers, a virtuous cycle that will be a boon for our economy.  In 1995, I believed this to be true.  Yet today, the value of our exports is dwarfed by the tide of imported goods, and our trade deficit continues to worsen.  Since we granted China Permanent Normalized Trade Relations Status (PNTR) at the turn of the new millennium, unleashing a veritable flood of low-cost imports, median household income has actually dropped in the U.S., from $56,800 in 2000 to $51,939 in 2013.  In fact, since China was granted PNTR, median household income has never been higher than in 2000 (the next highest since then was $56,436 in 2007).

From 2000 until 2007, our total trade deficit soared from $372 billion to $761 billion.  Even now, our trade deficit is 36% higher than it was in 2000.  Meanwhile, our trade deficit with China has skyrocketed.  In 1999, the year prior to the U.S. granting China PNTR, our trade deficit with China was $67 billion.  By 2007 it was $259 billion.  For 2014, it was a record $343 billion.

Why is this happening?  Because we are entering into trade agreements with parties that don’t play by the same rules.  If I own a factory that manufactures a widget, and I’m held to certain wage, safety and environmental standards, but my overseas competition is held to minimal standards or no standards at all, then my competitor’s widget will cost a heckuva lot less than mine.   This is simple common sense.  Those who disagree will claim that this is a naïve position and that the issue is far more complicated.  But it isn’t.  And I might even reconsider my position if the lower priced goods coming from overseas meant a better lifestyle for me and my fellow citizens.  But our standard of living, as measured by median household income, has actually suffered.  Yet the same pro-trade arguments are trotted out for the Trans-Pacific Partnership (TPP) as for China PNTR and NAFTA.

The Trans-Pacific Partnership is a trade agreement currently being negotiated between the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.  Note that China is not on the list.  It’s ironic that one of the main arguments in support of TPP is that it will help counterbalance the influence of China in the Pacific Rim.  China’s influence in that area of the world is to a great degree due to our support of their entry into the WTO, our massive imports of China-made goods, and their buying of our debt.  In other words, TPP is a trade deal that attempts to solve a problem created by a trade deal.

One of the greatest dangers of TPP is its potential effect on the nascent apparel manufacturing renaissance in the U.S.  In his presentation at the spring 2014 meeting of the Americas Apparel Producers Network, Roger Gilmartin, Managing Director of O’Rourke Group Partners, an international management consulting firm, estimated that if TPP passes U.S. job losses in the apparel industry alone would number 150,000 if the yarn-forward rule is eliminated.  The yarn forward rule requires that everything from the yarn to the fabric to the cut & sew operations be sourced from signatory countries.  If the yarn-forward rule is negotiated away by the U.S., Vietnam, which is becoming a major exporter of apparel to the U.S., would be allowed to source its fabric from China.  This would, in effect, give China a duty-free back door into the U.S. apparel market.  And let’s keep in mind that even without TPP our trade deficit with Vietnam is already surging, from $16 billion in 2012, to $20 billion in 2013, to$25 billion in 2014.

TPP could also lead to a loosening of our safety standards on imported meat and other foods.  According to a June 2014 report from Public Citizen, if the TPP member exporting country claims that their safety processes and standards are “equivalent” to those in the U.S., and the U.S. refuses entry of their goods, the exporter could bring a challenge to an international tribunal that would rule on whether the U.S. violated the treaty’s protocol.[1]  In essence, we could be dangerously dumbing down our food safety standards.  Further cause for concern is that the FDA has continuously cited seafood exporters in both Vietnam and Malaysia for selling products that contain contaminants.  During the 5-year period from 2007 to 2012, the FDA rejected 1,380 shipments of Vietnamese seafood.[2]  According to Public Citizen, the FDA has placed 192 Vietnamese fisheries on a “red list” due to risk of salmonella contamination.

How and why are skewed trade deals passed by Congress?  In the past, trade promotion authority (TPA) has been used to grease the skids.  Congress periodically grants the president this authority – sometimes called “fast track” – when negotiating trade deals, and Obama is now pressing Congress to renew fast track to facilitate passage of the Trans-Pacific Partnership.  TPA is helpful to passing trade deals because it prevents Congress from picking the deal apart.  After the negotiated deal is presented, they have a simple “yes” or “no” vote.  Trade negotiators claim that without TPA, negotiators from other countries won’t make final concessions because the deal hammered out by the U.S. negotiators may not get through Congress, or may be amended.   The problem with TPA, particularly in regards to the Trans-Pacific Partnership, is that the negotiations are being held behind closed doors, which means Congress will not have adequate time for due diligence on the treaty’s contents before casting a vote.

The administration cannot have it both ways.  If it wants fast track authority, then it must keep Congress apprised of the details of the negotiations as they progress.  If the administration wants to keep the negotiations secret, then no TPA.  Proponents of TPP and fast track authority will claim that it’s not that simple.  Again, this is not complicated; it’s common sense.

In his January 2015 State of the Union address, Obama admitted that past trade deals didn’t work out well, but then asked for fast track authority while assuring that his trade deals (TPP, TTIP) would produce better results.  So, we are being asked to take the administration at their word that this is a fair agreement without knowing its details, and Congress is being asked to give them fast track authority before anyone sees the final text of the deal.  Seems to me Obama should have listened to his own advice concerning Cuba that he gave in the same speech, “When what you’re doing doesn’t work for 50 years, it’s time to do something else.”   Amen, Mr. President.   Since fast tracked trade deals didn’t work out well for U.S. families for the last 50 years, let’s try something else.

[1] http://www.citizen.org/documents/food-under-nafta-wto.pdf

[2] http://abcnews.go.com/Business/consumers-eating-feces-tainted-shrimp-fish-seafood-asia/story?id=17491264

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