TRADE AGREEMENT

Intro: But why is this potential agreement being treated as a weapon? It shouldn’t be used to contain China

Congressional leaders in America rarely agree on anything, but last week some good news stemmed from Washington. A bipartisan bill has been presented to Congress which, if passed, would for the first time in many years give the president ‘fast-track’ authority when negotiating trade deals. A huge trade deal looms, the Trans-Pacific Partnership (TPP), and the bill would provide a major boost for its prospects. It would bind America with 11 economies (including Japan but not China) around the Pacific Rim. The TPP is being mightily embraced. As Japan’s Prime Minister, Shinzo Abe, heads to Washington for a much anticipated trip – including an invitation to address a joint session of Congress – Mr Abe claimed that America and Japan were close to agreeing the terms of a bilateral agreement on trade.

However, there are two major caveats. First, ‘fast track’, formerly known as Trade Promotion Authority, may still fall foul of Congress. And second, Japan may not make any serious cuts to tariffs that protect its farmers. Yet, underlying this potential trade agreement is that both have been too quick to cast the TPP as a weapon in its desire to contain China.

Flanked by Japan and America, the TPP would link countries which make up 40% of global GDP. That could boost world trade and output by as much as $220 billion a year by 2025. It is aimed at reforming difficult areas such as intellectual property, state-owned firms and environmental and labour standards. It would link economies that lie at different ends of the spectrum of development – from Vietnam to Australia.

But, crucially, the TPP will not happen without fast track, which forces Congress into a yes/no vote on any pending trade deal (avoiding the risk that it will be amended into oblivion). And the passage of fast track will no-doubt face a lot of scepticism from congressional Democrats. There are those who will be implacably opposed, whilst others will want America to have a bigger arsenal with which to fight against unfair traders. Driven by a conviction that China artificially holds its currency down and destroys American jobs, some, such as the New York senator Charles Schumer, remain determined that fast track should include a provision that would make sure any specific trade deal included sanctions on currency manipulation.

Attaching a currency-manipulation clause to trade deals is a poor idea. Not only are they hard to define but the addition of such clauses makes reaching an agreement less likely. But Mr Schumer’s demands are hard to ignore given that the Obama administration has already, mistakenly, directly pitched TPP as a counterbalance to an assertive China.

While Mr Abe has also committed his country to joining the TPP on strategic grounds, the same mistaken logic of counterbalancing China looks set to cause problems in Japan. For example, Mr Abe is a born admirer of free trade. When he first entered negotiations, some of his backers believed that, by playing the China card, Japan would be spared from making real concessions: that America would care more about a pact that excluded China than about prising open Japan’s most protected markets, particularly rice.

Japan will want to keep tariffs high. The best it may offer will be to allow in a fixed quota of tariff-free rice from the other TPP members (including America).

If the China-containment logic prevails and leads to a minimalist agreement, then the economic gains from TPP will be slim. That was never TPP’s aim, but by having real value to set high new standards for world trade. That requires the boldest possible agreement.

In the long run, the world must surely gain if China joins the pact. Yet, the rhetoric makes trade negotiations sound like a contest. It shouldn’t be that way. This is a battle where the more you give away the more you win.