TPP is Now Even Deader Than Ever Thanks to Trump
by Peter Lee - Newsbud
January 31, 2017
Donald Trump issued an executive order withdrawing the United States from the TPP on January 23. He was predictably roasted by the libosphere, but not because Trump was cruelly dashing the cup of globalized prosperity from the lips of the thirsty American worker.
Matt O’Brien, who styles himself the economic wonk at the Washington Post, admitted the TPP was DOA as effective trade policy. Instead, he wandered over into the geopolitical patch and flayed Trump for unilateral disarmament in the face of China: Donald Trump has forfeited his first fight with China.
An alternate title might have been, Donald Trump How Dare You Not Drag the TPP’s Corpse to Asia?
O’Brien fessed up that the economic impact of TPP on the United States would probably be negligible: an estimated .23% bump in annual national income. The trade commission report he cites also says that real GDP would rise by .15% by 2032 over the non-TPP baseline projection.
Consider this: the margin of error in US quarterly GDP calculations is around +/- 1.3%. Which means any TPP gains are within the margin of error.
So is there a justification for TPP beyond providing further opportunities for aggrandizement by transnational corporations, one that might interest John/Jane Q. Taxpayer?
O’Brien claimed that the TPP, though economically insignificant, was a potent anti-Chinese weapon. Maybe.
[T]he real reason to support the TPP wasn't economics so much as geopolitics. It was about keeping an economic foot firmly planted in China's backyard, and writing the trade rules so they couldn't. If this sounds like a less quantifiable benefit, well, that's because it is.
Indeed, the Obama administration, unable to sell the murky economic benefits of the secret TPP regime, started playing the China card in 2016 as the ratification struggle approached.
Ash Carter, for instance, had famously styled TPP as the equivalent of “another aircraft carrier”.
I’ve got my doubts about that “less quantifiable benefit”.
The idea that the PRC, the largest economy in the region, could be successfully faced down by a so-called high-standards trade bloc wasn’t too likely. Especially since the PRC was promoting its own “low standards” trade regime, the RCEP or “Regional Comprehensive Economic Partnership”. And the Asian nations were lining up to join both TPP and RCEP. Money talks and standards walk in my opinion.
To support his assertions concerning the TPP as a geopolitical weapon, O’Brien made this jaw-dropping statement:
[Trade agreements] were still a way to not only open up markets, but also reward countries for reforming their economies like we wanted.
As Paul Krugman argued at the time, that was why NAFTA made more sense than any economic model would have told you. If we rejected Mexico's liberalizing government, it might have collapsed — and an anti-American one could have taken its place.
Ah, Paul. Ah, Matt!
Ah, Bill Clinton! In 1993 you didn’t tell me we went through all that NAFTA political trauma just to prop up the PRI government of Mexico!
When he signed NAFTA, Big Dog told me:
NAFTA means jobs, American jobs and good- paying American jobs. If I didn't believe that, I wouldn't support this agreement…I believe that NAFTA will create 200,000 American jobs in the first 2 years of its effect…I believe that NAFTA will create a million jobs in the first 5 years of its impact.
I’m guessing that O’Brien’s stalwart defense of TPP as a useless trade pact is informed by the undeniable reality that NAFTA…turned out to be a useless trade pact. The LA Times ran a piece on NAFTA that stated that specific gain attributable to NAFTA (as opposed to China & other global factors) wasn’t much:
After the 20th anniversary of NAFTA, the Congressional Research Service concluded that the trade agreement's effect on the U.S. economy was, on the whole, relatively small. And an earlier Congressional Budget Office report, released a decade after NAFTA, estimated that the accord added "probably no more than a few billion dollars, or a few hundredths of a percent," to the annual U.S. economy.
So if trade pacts are pretty much useless, pretty much the only Trump-bashing justification is the geopolitical one of “rewarding reformers”.
Unfortunately, O’Brien appears to mis-represent Krugman’s support for NAFTA. Krugman did not by any means regard NAFTA as a brilliantly conceived geopolitical master stroke.
More like a blunder that needed some papering-over.
What Krugman said in his 1993 Foreign Affairs article O’Brien links to—The Uncomfortable Truth about NAFTA-- was that NAFTA was economically insignificant and unnecessary and the only reason to do it was to do Mexico’s President Salinas a solid…which Salinas needed only because he’d climbed out on a political limb and needed some help down:
We can see with the benefit of hindsight that it might have been better if President Salinas had not proposed NAFTA…But it is too late to reverse course. A rejection of NAFTA by the United States would be a devastating slap in the face of Mexico’s reformers…Nobody can be sure what will happen if NAFTA fails. The likely forecast is…financial crisis for Mexico as investors realize that the success of reform is not guaranteed, political crisis as Mexican populists like Cuauhtemoc Cardenas Solorzano—who may well have really won the last Presidential election—taunt the leadership with the way America rewards its friends.
Well...hold that thought about a financial crisis. And a political crisis.
It might be worth pointing out that the fraudulent character of Salinas’ win over Cardenas in 1988 that Krugman so casually alludes to was confirmed by the guy who did the rigging, the president of Mexico at the time, Miguel de la Madrid. But you go into a neoliberal globalizing ratf*cking with the reformer you’ve got, not the reformer you want, is the message here I guess.
Perhaps because of the pressures of hot-take journalism and the WaPo’s need for at least 12 anti-Trump items per day, O’Brien didn’t dig a little deeper to discuss the political and strategic impact of NAFTA on Mexico. Way, way deeper. Like Wikipedia. Fortunately, Newsbud is the home of handmade artisanal slow news, so I’ll do the heavy lifting for him.
In retrospect, in fact, for Mexico, NAFTA looks like the ultimate poisoned chalice.
First things first. “NAFTA as a favor to Salinas without any downside” didn’t pan out.
The Zapatistas symbolically chose the day NAFTA took effect to launch their revolution in Chiapas to protest the Mexican government’s abandonment of subsistence farmers to the untender mercies of American agribusiness.
Salinas’ handpicked successor as president, Luis Donaldo Colosio, was assassinated, allegedly because he was leaning toward invoking the rhetoric of understanding with the Zapatistas in order to overcome the social and political headwinds his campaign was encountering.
In trying to manage the Zapatista challenge, in other words, Colosio was thereby pushing PRI Mexican politics too far to the left to please the anxious and angry conservatives around Salinas, if not Salinas himself.
Well, maybe Salinas himself, with the Colosio murder allegedly sparking over a dozen collateral cover-up hits perhaps orchestrated by Salinas’ brother.
Then, Salinas bungled the binge-spend-political campaign endgame in 1994 when he was trying to pump up the economy to put Ernesto Zedillo, the guy who stepped in for Colosio, in power. To finance deficit spending he had to sell bonds. Not peso bonds but bonds that were sold off in pesos and redeemed in US dollars. Why? Oh why?
This may have been a response to three important events that had shaken investor confidence in the stability of the country: the Zapatista uprising, the assassination of PRI presidential candidate Luis Donaldo Colosio, and the assassination of José Francisco Ruiz Massieu, Salinas' former brother-in-law, who was also the Secretary General of the PRI and whose murder was never solved during Salinas' presidency, even when Mario Ruiz Massieu (Francisco's brother) was the attorney general and in charge of the investigation.
Ah, investor confidence! Apparently the NAFTA magic was helpless before the realities of Mexican politics and corruption and a financial crisis popped up anyway.
Salinas flinched from raising interest rates to protect the peso, the forex reserves emptied out, the peso lost almost half its value in a week, and as for Mexican businesses that were livin’ the dream in NAFTA-land, bringing in that good American stuff, now they had devalued pesos and US dollar debt and a world of problems.
In 1995, inflation doubled, unemployment doubled, and GDP fell by 6.2%. Infant mortality went up 7% because mothers had to work instead of looking after their kids.
Maybe it wasn’t just Salinas.
Maybe…NAFTA played a role. Liberalization of the financial system allowed foreign capital to pour in and inflate a bubble of false prosperity that Salinas and the PRI politicians couldn’t bear to pop. To keep on NAFTA’s good side when things turned nasty, Mexico did not resort to capital controls to try to shield its economy even as the hot money that had poured into the economy post-NAFTA began to giddyap outta there:
Critical scholars conclude that the 1994 Mexican peso crisis exposed the problems of Mexico’s neoliberal turn to the Washington consensus approach to development. Notably, the crisis revealed the problems of a privatized banking sector within a liberalized yet internationally subordinate economy that is dependent on foreign flows of finance capital.
President Bill Clinton had to stump up a $50 billion rescue package for Mexico.
Salinas himself, instead of basking in the thanks of a grateful nation for his farsighted decision to pursue NAFTA, left Mexico for self-imposed exile in Ireland in 1995 to dodge the legal and political unpleasantness relating to the collapse of the Mexican economy, a string of murders surrounding the Colosio assassination, and the role of his brother, Raul Salinas, in the misappropriation of at least $66 million in Mexican government money that ended up in Switzerland during Salinas’ presidency.
Here’s a grace note from the Encyclopedia Britannica, not exactly a hotbed of leftist agitation, concerning some more NAFTA blowback:
In retaliation for Cardenas’ outspoken stand against privatization and the North American Trade Agreement, both embraced by Salinas, the government targeted Cardenas and his supporters. Between 1988 and 1994 about 500 activists affiliated with the PRD [Cardenas’ party] were murdered.
With this background, we can take a more informed look at O’Brien’s assertion-- If we rejected Mexico's liberalizing government, it might have collapsed — and an anti-American one could have taken its place.
A more accurate phrasing might be If we rejected Salinas’s criminal enterprise, it might have collapsed—and a democratic government could have taken its place.
But it looks like even that unflattering rephrasing gives NAFTA too much credit.
By fueling the Zapatista rebellion, triggering a murderous split between rightists and reformers within PRI, and enabling the hot money meltdown that cratered the Mexican economy, NAFTA didn’t help Salinas—it made his job harder and, in fact, drove him into exile.
Long story short, NAFTA was an all around fiasco for Mexico.
Far from averting a political crisis, NAFTA sparked a major, ongoing insurgency inside Mexico that apparently led to the assassination of the leading presidential candidate and a campaign of political murder against opponents of the pact.
NAFTA failed to forestall an economic crisis; in fact the poorly-constructed liberalization contributed to and exacerbated Mexico’s economic crisis in the 1990s.
The “reformer” NAFTA was supposed to reward wasn’t a reformer: he was an opportunist who saw the path to influence was giving the Yanquis the neo-liberal policies they craved.
It could even be argued the main significance of NAFTA was that maybe it gave Salinas the political capital he needed to complete a campaign of murder, theft, and corruption…and postpone the day of reckoning long enough for him to drive the Mexican economy into a ditch!
So O’Brien has zero basis to claim NAFTA as a positive precedent for TPP as a piece of geopolitical genius. It’s just the opposite. NAFTA stands accused of making the situation worse.
Maybe that’s the globalist definition of a “less quantifiable benefit”—less than zero.
Perhaps the message O’Brien got through the neoliberal jungle telegraph was the current rationale for the TPP is to do a solid for Japan’s Shinzo Abe like NAFTA was supposed to do for Salinas—without going into the messy and embarrassing details of the Mexican case.
Japan, after all, was cast for the role in Asia under TPP that Salinas played so miserably in NAFTA: the free market force multiplier that will make the United States/Japan combine an economic and strategic factor to be respected and reckoned with in East Asia…and by China.
I had my doubts about that rosy scenario for TPP.
In Washington, with solid historical reasons, perhaps Abe is regarded as securely in America’s pocket as Salinas was.
But I think that’s an inaccurate reading of Abe, his fraught relationship with the United States, and his strategy for securing Japan’s economic and security position in Asia.
I think Abe astutely exploits the US desperate eagerness for a bestie in Asia to upgrade Japan’s centrality in regional security and economics, not exclusively to secure American power but also to prepare Japan against the day if/when/as the US is marginalized by distance, diminished capacity, and the lure of other opportunities.
Well, thanks to Trump that day’s come sooner than expected, at least in the case of “trade agreement geopolitics”.
And if it means that we’ve lost the opportunity for TPP to “do a NAFTA on Japan” like what happened in Mexico, well maybe it’s a win for everybody.
But, as the wreckage of the TPP is hurriedly swept away, what is becoming clear is how shaky the political, strategic, intellectual and, perhaps, moral foundations of trade-pact globalism really are.
Peter Lee, Newsbud Senior Analyst & Commentator, has been involved in East Asian affairs since 1979, first as a businessman and then as a writer. He has been writing on China with a focus on US policy since 2005. Mr. Lee’s work has appeared at Asia Times, CounterPunch, Japan Focus: The Asia Pacific Journal, and the South China Morning Post. He is the proprietor of the China Matters blog.