For New USTR Deputy Nominees, Some in Senate Want Them to Jumpstart TPP

This week had two more staff hearings for senior-level deputies who will work alongside Katherine Tai in the USTR. But what we are seeing from some in the Senate is a veiled sales pitch to revive the TransPacific Partnership. The notion is that if you want to “work with allies” – a favorite saying of the Biden team – you have to bring China to heel in Asia with TPP.

“We have to be strong on China, and we have to get our other allies in the region as well to be supportive,” said nominee Sarah Bianchi to the Senate Finance Committee on Thursday. She is nominated to be Deputy United States Trade Representative and would be in charge of Asia, Africa, Investment, Services, Textiles, and Industrial Competitiveness.

Jayme Ray White, nominee for Deputy United States Trade Representative, who will be in charge of the Western Hemisphere, Europe, the Middle East, Labor, and Environment, said that “In terms of our competition with China, it’s important to be in the game, and be fighting for more open markets for American products.”

See their opening statements here.

This is all music to the ears of TPP aficionadas, the sweeping trade deal that was basically NAFTA for all of Asia ex-China.

Many free traders in the Senate who believe Trump’s scrapping of the TPP was a bad idea, like to highlight the Regional Comprehensive Economic Partnership (RCEP) in Asia. Most of this is a customs union, moving to reduce tariffs at tortoise-level speed, and often reported in the press as the Chinese-led TPP in order to light a firecracker under the seats of those in Washington who still advocate for TPP as a means to counter China.

In theory, the TPP would make it less enticing for U.S. companies to want to outsource to China thanks to strict labor and environmental standards that make TPP partners better. But while that would just shift China investment to southeast Asia (as has already happened with furniture manufacturing in Vietnam and Chinese solar multinationals investing in Malaysia and elsewhere), it does little to guarantee a bigger market for U.S. products.

For starters, an overvalued dollar (CPA estimates that the dollar is roughly 25% overvalued) would not make it any more interesting for the Japanese, Aussies, or Vietnamese to import American made goods in any meaningful way as they would be too costly.

See CPA’s October 2020 Working Paper on a Market Access Charge for foreign investors in U.S. securities as a means to contain dollar strength.

Plus, what is stopping companies from making desired American brands in Southeast Asia instead? The profit might flow back to headquarters in the U.S. (more likely will be held in a Singapore bank for tax purposes), but it surely would not be a labor-led trade agreement.

On June 22, during an International Trade, Customs, and Global Competitiveness Subcommittee hearing, Committee chair Sen. Thomas Carper (D-DE) reminded the other 20 committee members that Tai helped get strong labor and environmental rules in the new U.S. Mexico Canada Agreement. So let’s make TPP like USMCA. This was always the idea – TPP was just NAFTA on steroids.

“With 60% of the world’s population and more than one-third of the world’s GDP, Asia is a region of the world we simply cannot ignore,” Carper says, though who is ignoring Asia?

Let it rest. It’s time to move on.

No one is ignoring Asia. China is the most important foreign and commerce policy issue in Washington. Every Wall Street firm wants to invest in China and sell financial services to the Chinese. They are doing just that. Hollywood doesn’t make a movie for a global audience without China’s approval. Our trade deficit with Vietnam is greater than that of our allies in Italy and France. American soy farmers are beholden to China for its exports. America’s number one source of beef imports is Australia; and while that is not technically part of Asia, it is part of the RCEP deal Carper says the U.S. must counter.

In another hard sell for TPP, Carper said, “The TPP did not die a quiet death after the United States withdrew from the agreement. Eleven remaining TPP signatories signed a new Comprehensive and Progressive Agreement on Trans-Pacific Partnership. Recent reporting reveals that China is quietly, but deliberately, seeking to join this successor to the TPP. That should set off alarm bells for all of us.”

What Carper didn’t say was that Vice Premier Li Keqiang has not been quiet about it. He mentioned an “interest” in joining this agreement, but that there were massive doubts that they would be let in in the first place.

There is a mountain of evidence that when the U.S. makes trade deals with low-wage manufacturing nations, it tends to lose jobs and sometimes entire industries. When these nations subsidize their domestic industries, intervene to hold down their currency, encourage forced labor or minimal environmental standards, the losses for the U.S. worker are even more severe.

Examples include our experiences with our 2011 trade agreement with South Korea, which sacrificed a segment of the U.S. car industry; Mexico (home goods, electronics and autoparts), and of course China getting the status of permanent normal trade relations in the 1990s, a legal designation in the United States for free trade with a foreign nation.

Even without a trade agreement, Vietnam has accelerated its exports into the U.S. to a staggering $80 billion last year. What would a deal with 11 countries similar to Vietnam do?

Sen. Carper didn’t say that, either because he is not tuned in fully to current global trade flows, or doesn’t want to let the cat out of the bag.

Bianchi and White did not address TPP in their opening remarks. The full transcript of the hearing has not yet been published.

“The Administration has been clear about its commitment to making the necessary investments at home and working with allies to address the challenges posed by China,” Bianchi said.  “We must have a coordinated and coherent approach that restores the necessary balance to our trade and economic relationship. Far too often, the review and development of trade policy are separated from the work of creating a competitive economy and a strong middle class.  I believe trade must be intricately linked to this effort,” she said, a complete nod to Katherine Tai, who has made similar remarks in her testimonies to Congress.

Bianchi served as an aide to Biden while he was Barack Obama’s vice president and is a senior managing director and head of U.S. public-policy research at Evercore ISI. She previously worked for BlackRock, one of the lead investors in Chinese companies sanctioned by Washington, as CPA highlighted recently.

White said in his two decades working in Washington, including on trade policy at the House Ways and Means Committee, that he “learned valuable lessons about how trade affects working people.”

White is a close ally of Tai. He worked with her in House Ways and Means to get labor and environment provisions in the USMCA.

“President Biden and Ambassador Tai have laid out a historic new policy approach centered around workers,” White said.  “Historically, trade, labor, and regulatory policy has been tilted in favor of corporations and the wealthy.  Workers have not always benefitted from government policy.  The promises often didn’t reach the factory floor and wages didn’t go up, creating deep skepticism about the efficacy of trade policy. Ambassador Tai believes we need a different approach that gives workers a seat at the table – so their perspectives and voices are incorporated into the policy we develop.”

With the exception of America’s global corporations – be it Apple or Facebook, GM or Caterpillar – opinion inside labor and domestic manufacturing companies is not on the side of TPP. That should be the case even for a TPP with strict labor and environmental rules, as there is just no way a U.S. manufacturer could compete with a unified southeast Asia factory base that pays much less than the American minimum wage. The average minimum wage in Vietnam, for instance: around $200 per month.