TPP & Other Free Trade Myths

June 29, 2015

By: Kelly Diamond, Publisher

TPP Free Trade MythWe talk a LOT about free trade and commerce here at GWP. Indeed we are ALL about free enterprise, make no mistake. The less regulation the better, the lower the taxes the better. It is by far the most peaceful means people can connect and move resources.

This principle applies to countries as well, albeit under ideal circumstances, governments wouldn’t engage in commerce at all. Still, the “Commerce Clause” of the US Constitution was meant to keep trade between the states regular. Sadly, these days it’s used as an excuse to regulate interstate commerce and impose federalized plans like Obamacare.

The European Union found its beginnings in trade disputes. How do all these countries with different regulations and currencies trade with any amount of efficacy? Federate some things! So now they have one currency and free movement between countries.

When you bind all these countries to the same fiat currency, however, the inherent conflicts between economic ethics becomes all that much more apparent. For example, the difference between Germany and Greece. Both members of the EU have entirely different ways of running their respective economies, which has led to bailouts and even threats of ousting Greece from the union.

The North American Free Trade Agreement (NAFTA) is another arrangement obviously predicated on trade. The US, Canada, and Mexico agreed to lift some of the tariffs between them to enable a freer flow of goods at a more affordable price.

NAFTA, however, did not come with any deregulation components.  For example, while US commercial freight vehicles can freely travel through Mexico, Mexican commercial freight vehicles must stop at the 20 mile mark and switch to US carriers because Mexican vehicular regulations are not as strict as in the US.  Also, the customs paperwork tied to NAFTA related goods is sizable.

Some HUGE farm subsidies rolled out soon after the signing of NAFTA, and severe market distortions resulted, which tend to favor the US over the other two members.  That boost in US farm subsidies, as well as the reduction in Mexico’s farm subsidies, make it impossible for Mexico to compete agriculturally, so they have lost millions in agricultural revenues to US goods being exported to Mexico. As a result, Mexican farmers have even resorted to harsher chemical treatments and clearcutting in an attempt to compete with the lower priced American goods.

US factories moved to Mexico for the cheap labor, to border town areas called “Maquiladoras. An inevitable competitive component of freer trade is that it might include labor forces as well. In the case of NAFTA it absolutely did. Americans lost jobs to Mexico because they couldn’t win the price war, and Mexico lost agricultural business to the States because it couldn’t compete in the subsidy war.

Thus far, these trade agreements have led to disproportionate prosperity and losses. In the case of the EU, the more solvent nations foot the bill for the insolvent ones. In the case of the Commerce Clause, the total negation of its intended purpose for control over the healthcare and insurance industries. In the case of NAFTA, cronies making money off government subsidies in a rigged trade agreement.

That brings us to the Trans Pacific Partnership or TPP. I see a lot of people on social media saying that this just snuck in while everyone was watching the SCOTUS decision on same-sex marriages and the South Carolina Governor, Nikki Haley, announcing her decision to remove the Confederate flag from state buildings. I must say, those two things have gotten far more play on the news and social media outlets than the TPP, which got me wondering if token government social gestures aren’t the perfect cover for some insidious new trade agreement.

Well the good and bad news is: it’s no more insidious than any other trade agreement between developed and developing countries. The scope of the TPP is considerable and is one of the biggest free trade agreements in over a decade.

The TPP is between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The countries involved are responsible for 40% of the world’s total GDP (Gross Domestic Product) of $88 trillion, 26% of its trade, and 793 million of its consumers.” (Source About: US Economy)

Notice any conspicuous players missing from that list that also happen to have a large border with the Pacific Ocean?

That’s right! China.

Is this the US aligning with countries to get a leg up on China? I don’t know. I am certain, however, that China not getting an invitation to the TPP party was quite deliberate.  There are certainly a good number of congressmen who are concerned about currency manipulations from China to hold up approval of any “fast track” policies.

(Sidebar: I read the “fast track” policy as being just a way for the president and congress to avoid due process… I mean since its stated purpose is to circumvent the process of adding an official amendment and all.)

The TPP also has a strong focus on Intellectual Property (IP), especially when it comes to pharmaceutical patents and copyrighted movies and music. There is an almost infamous pirating market in Southeast Asia (albeit the quality is questionable at times). And while I don’t see too much of a problem with movie and music downloads and bootlegs, that isn’t as devastating as the extended patents on biological drugs. To deny the manufacturing of cheaper and more affordable generics to anyone — especially 3rd world and developing countries, is, in my opinion, inhumane.

This smacks of cronyism. Considering the ones who stand the most to gain from this in terms of profit are not the destitute or the working class, but the people holding the patents and their colleagues. I don’t mind people making their money, but if you need to rig an international trade agreement and maintain a monopoly to do it, then it is hardly legitimate.

You know what else smacks of cronyism? The hold up with US tobacco exports.

Finally, the market access element of the proposal will remain unchanged, consistent with long-standing trade and agriculture policy. As we do for other products, we will continue to press for the elimination of tariffs on U.S. agriculture exports, which, by their very nature, discriminate against American farmers.” (Source: US Trade Representative)

“…preserving the ability of the United States and other TPP countries to regulate tobacco and to apply appropriate public health measures, and bringing health and trade officials together if tobacco-related issues arise – while remaining consistent with our trade policy objectives of negotiating a comprehensive agreement that does not create a precedent for excluding agricultural products.” (Source: US Trade Representative)

At first it was about tariffs, right? Then it became a “comprehensive agreement” that doesn’t exclude US agricultural products? They don’t just want the taxes lifted, they want anything that would limit their entry into these markets lifted. This might include advertising restrictions. This might include regulations on components and ingredients.

They predictably kept it vague, but why such a hang up on tobacco in particular? They specifically call it out as opposed to avocados or artichokes or citrus fruit. One minute tobacco is a dangerous substance that needs heavy regulation in the US… next minute it’s just agriculture — no different than a head of lettuce.  It magically becomes this benign good once it is exported to another country, and the regulation of it is discriminatory in nature!

There’s also some reluctance on the part of Japan to lift agricultural tariffs and equal reluctance on the part of the US to lift automotive tariffs. Japan is economically hurting and relies heavily on imported agricultural goods along with the tariffs those goods bring.  The US has the United Auto Workers union, and can’t lose market share to Japanese cars.  We shall see how this all plays out since most of the details are being ironed out behind closed doors.

I’m ALL for free trade. But I think what *I* consider “free” and what governments (especially the US government) consider “free” are wildly different things. Contriving a scheme to railroad several countries for the benefit of a few fascistic bedfellows is not “free trade”. The lifting of tariffs and reduction of paperwork is always a plus. And I certainly have no issue with jobs going where it’s most cost effective or beneficial for the companies’ bottom lines. I have issues with the double standards on tobacco regulations and the cronyism involving IP that limits the *free* aspect of “free trade”.

Given the limited information available there seems to be, more conjecture about the pros and cons of this agreement than hard numbers portending what to expect.  Seems like this is another one of those economic adventures where we have to pass it to see what in it.

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