Time To Finalize The TPP

Alexander Benard and Paul J. Leaf COO, Schulze Global Investments; Attorney
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President Obama’s failure to finalize the Trans-Pacific Partnership (TPP) while he was recently in Asia undermined his “Asia Pivot,” a key foreign policy priority of his administration. But continued TPP negotiations this week present an opportunity for President Obama to demonstrate — in the face of mounting doubts — an unwavering commitment to the free trade agreement and America’s Asian partners.  The TPP must be concluded as soon as possible if the U.S. wants to maintain its leadership position in Asia.

America’s Asian allies are questioning U.S. security guarantees in light of America’s failure to stand up to Russia and China on a variety of issues, including Ukraine, Syria, and Chinese aggression regarding disputed airspace, waters, and islands in the East and South China Seas. And with shrinking defense budgets on the horizon in the U.S. — including cuts that will affect America’s Naval size and thus its ability to project power throughout the Pacific — these doubts will grow in the coming years.

But security guarantees are only one of a number of tools available to the U.S. to signal a credible commitment to Asia. That is where the TPP comes into play as a commercial tool that can buttress America’s waning military position in Asia.

The TPP is a free trade agreement that will initially include 12 countries across Asia and North and South America, and is aimed at deepening trade and investment among its members. The proposed TPP signatories account for about 40 percent of global output and more than one-third of world trade. It is estimated that by 2025, the TPP could yield approximately $223 billion in global income gains each year ($77 billion for the U.S.) and an estimated $305 billion in additional world exports per year ($123.5 billion in U.S. exports). And in time, TPP membership could expand. Taiwan, for example, is already reforming its economy in anticipation of joining the agreement.

By anchoring a free trade area that includes economic powerhouses across the Asia-Pacific region, the U.S. can demonstrate that it remains fully committed to its Asian allies. And there are strategic benefits, too. First, as the TPP ranks grow, liberal economic policies will spread and China will find itself increasingly surrounded by countries more closely aligned with the U.S. Second, the TPP will lay the groundwork for more multilateral cooperation among U.S. partners. Currently, the U.S. relies too much on bilateral relationships in the region. Robust treaty arrangements exist between, for example, the U.S. and South Korea and the U.S. and Japan — and relations between the U.S. and Vietnam are improving. But through the TPP, Japan, South Korea, and Vietnam can also work together to deepen ties.

Third, the TPP will enable its members to strengthen their militaries while many of them struggle to keep up with China’s increased defense spending. Finally, the agreement can reduce dependence on Beijing. China is the largest or second largest trade partner of several potential TPP members, but the sizeable market created by the deal will offer these countries an alternative market for their exports.

Despite these benefits, TPP negotiations have stalled since beginning in 2010 and the Obama administration has missed several self-imposed deadlines to finalize the deal. Indeed, when he was in Tokyo last month, President Obama could not resolve outstanding protectionist issues between the U.S. and Japan, including American tariffs imposed on Japanese cars. As with other trade agreements under President Obama, the TPP is bogged down in Congress amidst a flurry of concerns from different Democratic interest groups: labor unions are opposed because they believe the pact will outsource U.S. jobs and lower U.S. wages, and environmental and human rights groups claim that some potential TPP signatories do not adhere to adequate standards.

Most of these concerns, however, are grounded more in ideology than in fact.  The Obama administration has already included rigorous environmental, health, safety, and labor requirements in the TPP. President Obama’s inability to overcome Congressional opposition thus has little to do with the deal’s substance. Rather, it appears that President Obama undervalues the TPP’s strategic upsides, making him unwilling to spend the political capital necessary to rally his fellow Democrats to finalize the pact.

Democrats are focused myopically on winning as many congressional seats as possible in November’s midterm elections. Knowing that some of their voters regularly stay home for these elections, Democrats are pandering to labor unions and environmental groups to get out the vote. Indeed, less than one day after President Obama requested in his State of the Union speech that Congress grant him trade promotion authority to obtain a vote on the TPP without amendments, Senate Majority Leader Harry Reid balked. By not publicly pressing the issue, President Obama forfeited leverage he needed to complete the deal while he was in Asia. After all, other countries will not make concessions that displease some of their constituents if America will not do the same.

All of this would be normal politics if the TPP were just another trade deal, and if the implications were purely economic. But in this case, strategic interests are at play. Indeed, America’s continued leadership in Asia is at stake with the TPP.

President Obama must frame the TPP as a choice between narrow special interests and national security and then press his party to conclude the TPP during the trade talks this week.

Alexander Benard is COO of Schulze Global Investments, an American private equity firm focused on frontier markets.  He is the author of a Foreign Affairs article on U.S.-China competition in the frontier. Paul J. Leaf is an attorney at an international law firm, a commentator on U.S. foreign policy, and a former editor of the Stanford Law Review.