Monday, August 7, 2017

Trading Blows Over The TPP

Donald Trump pulled the US out of the Trans-Pacific Partnership free trade agreement, and there were plenty of folks in Congress on both the left and the right who would have scuttled any attempt to ratify the trade pact anyway.  The result?  Rural America, which overwhelmingly voted for Trump, will be the first to suffer the vast economic consequences as the rest of the world takes its money elsewhere.

On a cloud-swept landscape dotted with grain elevators, a meat producer called Prestage Farms is building a 700,000-square-foot processing plant. The gleaming new factory is both the great hope of Wright County, which voted by a 2-1 margin for Donald Trump, and the victim of one of Trump’s first policy moves, his decision to pull out of the Trans-Pacific Partnership.

For much of industrial America, the TPP was a suspect deal, the successor to the North American Free Trade Agreement, which some argue led to a massive offshoring of U.S. jobs to Mexico. But for the already struggling agricultural sector, the sprawling 12-nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States — the onetime “breadbasket of the world” — from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.

“I’m scared to death,” said Ron Prestage, whose North Carolina-based family pork and poultry business made its huge investment in the plant near Eagle Grove in part to reap expected gains from the TPP. “I don’t guess I’ve gone beyond the point of no return on the new plant, but we did already start digging our wells and started moving dirt.”

He and other agricultural businesspeople and workers have reason for concern.

On July 6, the EU, which already exports as much pork to Japan as the United States does, announced political agreement on a new deal that would give European pork farmers an advantage of up to $2 per pound over U.S. exporters under certain circumstances — a move which, if unchecked, is all but certain to create a widening gap between EU exports and those from the United States.

European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, would also see a 15 percent tariff on exports to Japan disappear while U.S. exporters would continue to face that duty at the border. For other products, the deal essentially mirrors the rates negotiated under the TPP, which the United States has surrendered, giving the EU a clear advantage over U.S. farmers.

The EU’s deal is all the more noteworthy because American farmers were relying on the TPP — to which the EU was not a member — to give them an advantage over European competitors. But in a further rebuke to the United States, Tokyo decided within a matter of weeks to offer the European nations virtually the same agricultural access to its market that United States trade officials had spent two excruciating years extracting through near-monthly meetings with their Japanese counterparts on the sidelines of the broader TPP negotiations; the United States is now left out.

The EU, which also recently inked a deal with Vietnam, is now moving forward with talks with Malaysia and is in the process of modernizing a pre-existing trade deal with Mexico.

Meanwhile, a bloc of four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance—is quickly becoming the leading force for free trade in the region, announcing near the end of June it would commence its own negotiations with New Zealand, Australia and Singapore, heedless of its neighbor to the north.

The rest of the world is moving on, leaving the Trump regime behind.  The free trade argument is that in order to protect US jobs, we have to engage in trade protectionism and make it cheaper to produce goods here instead of importing them from Asia, Africa, the EU and South America.

But the flip side to that is exports: trade protectionism also costs US jobs as other countries go elsewhere to buy things that we export.  The anti-trade folks say the balance still favors us as we import far more, meaning we'll come out ahead.  I beg to differ here in 2017, things are too interconnected to sit out the game like this.

Keep in mind however that there are going to be losers in a tariff war too, and there will be US jobs lost in places that can't exactly afford to lose them.  Barack Obama fought for the TPP because of this, but it got scrapped (along with the Paris Climate agreement and you know, our country) last November.

The US may be the world's biggest economy, we represent 24% of the planet's global economic activity, but that leaves 76% elsewhere.  The rest of the world will go on without us, and for the most part they already are.  We chose to elect the guy who would make that happen while carefully choosing to enrich himself at the expense of his own voters.

What did you think the end result of that was going to be?

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