Leaving the TPP Comes Back to Bite the United States

Debates over trade deals are often presented as a simple choice: continue the status quo or begin a new relationship. This binary, however, is not the choice we truly face. Proponents and opponents make their cases by citing job growth or decline, tax revenue and GDP effects, but neither side acknowledges that not doing a trade deal tends to result in a much worse outcome than the status quo.

Most nations want to see themselves as autonomous actors, free to determine their economic futures how they see fit. But, when it comes to global trade, protectionist nations that recede from global trade will merely get left behind as other nations sign trade deals that give competitive advantages. As has become clear with regard to the Trans-Pacific Partnership (TPP), Trump’s decision to pull out of the deal will put the American economy in a position far worse than the status quo that existed before TPP negotiations.

When debating the TPP, opponents acknowledged benefits to some American industries, such as agriculture, and also cited reports suggesting job losses in some other industries, especially automobile and textile manufacturing. In other words, the TPP issue was reduced to a binary dilemma where some win and some lose: more agriculture jobs would necessitate fewer automobile jobs. In short, the future with the TPP has been judged in relation to the contemporary economic situation.

Instead, as has become clear since January 1, when the TPP minus the United States came into force, the future with the TPP should have been judged compared to an alternative future in which our trading partners lower trade barriers to one another and leave the United States out in the cold. The choice Americans actually faced was between the trade-off represented by the TPP and an eventuality far worse than the status quo. Choosing to pull out of the TPP did not result in unchanged US trading relationships because the TPP countries continued to make trade deals among themselves, thus gaining a competitive advantage over American exporters.

Japan, for example, is the second largest economy in the agreement, behind the United States. When America negotiated the TPP, farmers saw a golden opportunity in Japan. Japan already imports $12 billion in American agricultural produce—the fourth largest recipient worldwide. Japan’s ranking is especially impressive: the three countries ahead of Japan are our neighbors, Canada and Mexico, and China, which has over ten times Japan’s population. This massive export market is all the more astonishing given Japan’s high agricultural tariffs in many of the most lucrative agriculture markets.

Urged on by farming lobbies, American negotiators drove a hard bargain, wresting huge concessions from a Japanese government usually beholden to its own farm lobby. Japan agreed to increase quotas of American rice, which faces a 778 percent tariff, as well as drastically cut tariffs on the largest components of American exports: 77 percent off beef tariffs, 80 percent off pork tariffs, 100 percent off cheese tariffs, 100 percent off wine tariffs and 100 percent off soybean oil tariffs. Increased quotas and reduced tariffs would have resulted in billions of dollars per year in gains for American farmers, which is why the American farm lobby was one of TPP’s staunchest supporters.

Donald Trump’s decision to pull out of the TPP not only deprived American farmers of these boons, but also left them dangerously exposed to Japan’s actions in other trade deals. Unfortunately for American farmers, the Japanese government appreciates the benefits of free trade and, in light of Trump’s decision, has eagerly pursued trade deals that exclude America. In fact, the other eleven TPP countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade deal without the United States.

The new TPP deal came into effect on January 1. Farmers in each of these countries are now reaping benefits that could have gone to American farmers. Before TPP, all countries were equally disadvantaged when trying to export agricultural products to Japan, but now the United States risks losing even the limited access it had. As Japanese tariffs are steadily reduced over the next few years for partner countries, American farmers will be left hanging dry. After all, why would the Japanese buy beef from Texas ranchers and pay a 38.5 percent tariff when they can get beef from Australia and only pay a 9 percent tariff?

American farmers are not only at risk of losing market share to these ten countries, but also of falling behind to an even larger competitor—the EU. Last July, Japan signed a massive free trade deal with the EU that will eliminate a whopping 94 percent of all Japanese tariffs, rising eventually to 99 percent. This deal, which begins on April 1, encompasses reductions in tariffs comparable to those previously achieved by American negotiators in the TPP agreement. Farmers and other exporters in the EU and ten Pacific nations will all have easier access to the Japanese market than will their American counterparts.

Thus, when contemplating whether or not to join the TPP a few years ago, Americans would have been wise to consider that they were not facing an option between a TPP world and the world as it was. Instead, the choice was between a world with TPP and a world of growing American isolation from global markets. When considering future trade negotiations (or considering re-joining the TPP), should we choose to not act on trade agreements, we risk falling behind as our competitors reap the benefits of free trade.

The image featured in this article is used under the Creative Commons 2.0 License. The original was taken by Lorie Shaull and can be found here.