Upon signing the Trade Act of 1974, President Gerald Ford declared that the new trade agreements to come “will mean more and better jobs for American workers, with additional purchasing power for the American consumer.” The bill established the fast-track procedures that prohibit congressional amendments to trade and investment treaties; it was, he said, “one of the most important measures to come out of the 93rd Congress.”
Ford was right about that. Thanks to fast track, trade policy has become increasingly centralized in the office of the president over the past four decades. Though they expired for the first time in the aftermath of NAFTA, fast-track powers were again authorized under George W. Bush in 2002, allowing his administration to sign an astounding 11 trade agreements before Congress again revoked the powers in 2007. Today President Barack Obama would like to start the process again. He is now urging Congress to grant fast-track powers for the next six years, in part so his administration can finalize negotiations on the Trans-Pacific Partnership (TPP), the largest investment treaty in history, encompassing 12 nations that account for 40 percent of global commerce. House leaders will begin canvassing votes today, with early indications suggesting that the president’s effort may fall short. And for good reason.
The TPP is being sold, The Wall Street Journal reports, as “a way to boost economic growth … by writing American-style rules of the road for commerce in a fast-growing region.” But beyond some tariff reductions in agriculture and strengthened copyright protections, this primarily means allowing investors to challenge foreign regulations that threaten potential profits. Because it’s being negotiated in secret — the document is classified — the treaty’s full impact cannot be known.
Obama has said the TPP will “end up being the most progressive trade agreement in our history.” In his weekly radio address on April 25, he argued that the U.S. must “shape the rules of the global economy … to benefit our workers” or else “China will write those rules.” The speech was titled “Fighting For Trade Deals That Put American Workers First.” Despite his claims, there is little evidence that the TPP would level the playing field for American workers.
Instead, a fast-tracked TPP would likely reinforce U.S. rules for commerce ironed out over the past 40 years — rules that have uncoupled gains for the workforce from the benefits of economic growth and left the U.S. with ballooning corporate profits and flat-lining real wages. It may well produce growth by some measure —but recent history shows little reason to expect it to benefit American workers.
In the years since the Trade Act, U.S. economic policy has been fundamentally transformed. Creating better jobs for the American worker is now thought possible only by creating better investment opportunities for the American shareholder, which, it is still argued, is the only way to stimulate the investment needed to produce more and better jobs.
But improvement in conditions for American workers seems to correlate inversely with freer investing abroad. In 1974, American workers saw the first reported decline in average real wages since the end of World War II. “In real terms, the average wage peaked more than 40 years ago,” reports the Pew Research Center. The Trade Act and the numerous investment treaties that followed, on which the TPP has been modeled, have not stopped the trend. Rather, what these investment treaties have done is increase shareholder profits. While average real wages haven’t grown since 1973, investor returns on an hour of American labor have more than doubled. As part of an arsenal of economic policies designed to strengthen and protect investors — including the creation of derivatives markets in commodities and home mortgages, reducing capital gains tax rates and, by 1981, a presidential imprimatur on union busting — these treaties contributed to capital’s escape from the redistributive New Deal state and so accelerated its demise.
Proponents of fast-tracking the TPP insist things will be different. “I’m the first one to admit that past trade deals haven’t always lived up to the hype,” Obama said in his State of the Union address. But beneath the new fair trade spin is the same logic of the past four decades. Rather than a treaty designed to facilitate the free flow of goods across borders, as its proponents insist, the TPP is at heart a treaty about freeing capital investments from any conditions set by national governments. By restricting foreign economic regulations — such as performance requirements, sourcing quotas, capital controls and even environmental rules — it emboldens investors to search for greater returns abroad, accelerating the type of economic integration that has broken up companies and distributed their various jobs to the lowest bidder.
There is no way to interpret the TPP as anything other than a corporate growth strategy with no unique benefit to American workers.
To understand the difference between the TPP and its predecessors, it’s useful to go back to the 1970s. Before the creation of the World Trade Organization in 1995, nations negotiated tariffs and trade barriers under the General Agreement on Tariffs and Trade (GATT). Tariffs and other limits to trade in foreign goods were gradually diminished through the many decades of GATT negotiations, but these trade agreements proper never established the sort of investment regime that U.S. investors wanted to see outside their borders — in other words, regulation-free zones when it came to their business practices but with vigilant protections against the nationalization of their assets abroad. At the time, the recently independent countries of the third world were eager to develop their domestic economies, and often American- and European-owned firms repatriating their vast profits to financial centers in the West were seen as a hindrance to this process. As post-colonial governments made good on their designs to develop their economies, the first world responded by developing the bilateral investment treaty (BIT), which allowed Western companies to have it both ways: seek profits abroad and keep their money safe at home (or offshore.)
The core of the TPP is based on the model of bilateral investment treaties pioneered during the Cold War to protect U.S. investments in African, Asian and Latin American countries. Signatories will be prevented from setting conditions on foreign investments; requirements that certain jobs be provided locally in a given country, for instance, may be banned outright. Nations that sign on will greatly lose the ability to institute capital controls, or prevent the transfer of funds into foreign financial institutions. Their domestic policies will be subject to corporate litigation at the International Centre for the Settlement of Investment Disputes (created in 1965 to arbitrate alleged BIT violations), which means their hands will be tied whenever considering legislation that could be argued to threaten potential profits.
Their economies will be increasingly shaped to shareholders’ — rather than sovereign — interests. The center ascribes to the doctrine of regulatory takings, which allows businesses to claim public compensation for the increased cost of any new regulations. This leaves economic policy to face a gauntlet of hostile corporate lawyers and judges who decide how much business can rake in over and above ordinary profits.
Ultimately, the TPP is barely a trade agreement at all. As Dean Baker, the president of the Center for Economic Policy Research, notes, “We already have very low barriers with most of the parties in the TPP.”
Why, then, is Obama, the leader of the Democratic Party, championing the deal as a boon to American workers?
The answer is primarily economic dogma. As the world enters a period of low growth, economists recognize that something must be done, lest the economy settle into equilibrium below capacity — with a permanently higher natural unemployment rate, for example. Nearly all agree that allowing investments to cross the globe in search of the highest returns is the best way to do this.
But allowing U.S. capital to recoup returns by moving abroad has not helped American workers. Today the country faces record income inequality, 5.5 percent unemployment (7.4 percent if you include those who have dropped out of the workforce) and real wages barely above their level in the 1970s — despite decades of regional and bilateral investment treaties, most recently NAFTA, CAFTA and KORUS.
The one way a fast-tracked TPP could benefit American workers is by reducing the currency manipulation that raises the price of U.S. goods abroad. U.S. employers lose billions when other countries set their exchange rates to overvalue the dollar. Making exchange rates more favorable for American producers is the best way to level the playing field for American workers. Yet the president said Friday that it was not even on the agenda.
There is thus no way to interpret the TPP, with the information the public has been given, as anything other than a corporate growth strategy with no unique benefit to American workers.
What’s more, if Congress passes the current Trade Promotion Authority, allowing the TPP to move forward, they will be granting fast-track authority for the next six years, to an unknown president. There is enough confidence in the direction of U.S. economic policy for Congress to consider granting executive authority to maintain the momentum for six years without even knowing who the executive will be. That’s faith. That allowing American capital to flow unconditionally abroad can continue to be sold as protecting American workers is more than an act of duplicity; it’s a sign of our leaders’ blind loyalty to disproven economic dogma.