The Strategic Importance of TPP
September 18, 2014
“The stakes for U.S. trade policy have always reached beyond the economic realm. As nuclear strategist and Nobel Prize winning economist Thomas Schelling once noted, “Trade is what most of international relations are about. For that reason trade policy is national security policy.”
“What’s remarkable about Schelling’s observation is that it was made during an era when economic power was viewed largely as an ancillary power to military power. During the Cold War, and for much of the 20th century, economic policy – including trade policy – was seen largely as an enabler: The role of a strong economy was to support a strong military.
“Military power still has deep economic roots, and as history has shown, when those roots dry up, it is not long before our military forces begin to wither as well. But the world has changed dramatically since Schelling’s time, and the sum of those changes has brought economic and strategic aspects of trade into even closer alignment.
“In the 21st century, the oldest and strongest strategic argument for trade – its contribution to the U.S. economy – has only grown stronger. Increasingly, though, economic clout is a key yardstick by which power is measured and a principal means by which influence is exercised. Today, market changes are watched just as closely as military maneuvers, and decisions in boardrooms can matter as much as those made on battlefields.
“Strengthening the U.S. economy is not simply a means of enabling military might, but rather a key strategic goal in itself. As such, it’s critical that we continue to evaluate trade agreements first and foremost on their economic merits. Those agreements must support jobs, spur economic growth, and strengthen the middle class.
“For the United States, the economic merits of trade have never been clearer than they are now. Over the past five years, the increase in U.S. exports has generated nearly one-third of our economic growth, and over the past four years, this surge has supported 1.6 million new jobs. Last year, U.S. exports hit an all-time high, $2.3 trillion dollars of U.S. goods and services, with record-breaking performances across the whole economy, from agriculture to manufacturing to services.
“Building on these successes, President Obama’s trade agenda aims to make the United States the world’s production platform of choice – the top destination for investment. To paraphrase Chairman Wyden, we want to make it here, grow it here, add value to it here and sell it everywhere – sell it all over the world.
“We already have many of the pieces in place: We are a $17 trillion economy, we have strong rule of law, a skilled and productive workforce, an entrepreneurial culture, and now new sources of abundant and affordable energy.
“Layered on top of this is a trade agenda that would give American businesses and workers unfettered access to two-thirds of the global economy, boosting investment and manufacturing policies that have already begun to bring manufacturing jobs back to our shores.
“The economic case for trade is the longest pole in the strategic tent, but the tent extends well beyond economics. U.S. trade policy is a central part of what may be the most consequential strategic project of our time: revitalizing the post-World War II international economic order.
“That order, as John [Hamre, President of CSIS] just said, has ushered in prosperity and peace and developed that is unparalleled in history, not only for the United States, but for every nation that has been willing to embrace the pillars of openness and fairness. In recent years, however, a series of seismic shocks – globalization, technological change, and the rise of emerging markets – have shaken the foundation of this order.
“We’re now engaged in a major effort to ensure that as the current order evolves, it continues to reflect our interests and our values, and that the United States continues to play a leading role in it. And trade is one of our most promising tools for that project. Now I could talk here today about T-TIP, TiSA, or ITA, or EGA or TFA, but I know you’ve gathered here to talk about TPP, the Trans-Pacific Partnership, and so I’ll focus on that as the perfect example of how the economic and strategic logic of U.S. trade policy are mutually reinforcing.
“As you all know, TPP is an ambitious and comprehensive agreement that the United States and 11 other Asia-Pacific countries are trying to complete. Economically, TPP is an opportunity to bind together a group that represents 40 percent of global GDP.
“In today’s global economy, our workers and our firms are already competing against others who do not share our high standards in labor rights, environmental protections, intellectual property rights, a free and open internet, and other issues.
“By setting high standards, TPP will help level the playing field for American workers and businesses, who are among the most productive in the world. We already know that when the game is fair, that we can compete and win. And having already lowered most of our barriers, we stand to gain disproportionately from encouraging others to do the same.
“Those standards that we are seeking include are the highest labor and environmental standards of any trade agreement – standards that will be fully enforceable. They include advancements in intellectual property rights protection, both to spur innovation and ensure access to it. This agreement will include the first-ever disciplines on state-owned enterprises, which will ensure that when SOEs compete against private firms, they do so on a commercial basis. And this agreement will break new ground by translating trade principles from the physical economy into the digital economy to ensure that there is a free and open Internet – which is so critical for small and medium-sized businesses being able to access the global market.
“These standards reflect both our values and our interests. There are alternative models bring promoted as well. Ones that are based more on mercantilist policies; ones that do not focus on labor and environmental standards; ones that do not focus on protecting intellectual property rights or leveling the playing field between State Owned Enterprises and private firms or maintaining a free and open Internet. These models do not reflect our interests and our values.
“So we want to see a race to the top, not a race to the bottom that we cannot win and should not try to run.
“But looking beyond just the trade elements, TPP is a central component of America’s rebalance to Asia.
“At a time when there are unresolved territorial and maritime disputes, TPP can reinforce our presence in the region and our interest in establishing methods of cooperation and mechanisms for resolving frictions.
“At a time when there are crises on multiple fronts, TPP can demonstrate that the United States is and always will be a Pacific power and be a concrete manifestation of our enduring commitment to the region.
“At a time when there is uncertainty about the direction of the global trading system, TPP can play a central role in setting rules of the road for a critical region in flux.
“The stakes for setting new rules of the road for the global trading system have never been clearer, and yet it has become increasingly difficult to do just that. One barrier to progress has been the emergence of emerging economies that have been unwilling to date to assume enhanced responsibilities commensurate with their increased role in the global economy.
“At the WTO, for example, where recently we’ve seen a handful of countries block the implementation of the Trade Facilitation Agreement, which would have brought significant benefits to developing countries and developed countries alike by making border and customs procedures more efficient.
“In the face of these challenges, we must keep moving forward and working with others who share our commitment to setting higher standards.
“Motivated by these stakes, both economic and strategic, we’ve made substantial progress in the TPP negotiations to date. We can see the light at the end of the tunnel, but it will take a final push, a collective effort, and a willingness to stretch to achieve an agreement that is consistent with our high ambitions.
“Central to that collective effort and the future of TPP are our ongoing negotiations with Japan.
“Japan asked to join TPP three years into the negotiations, after much consultation, based on its own assessment of its strategic and economic interests. Japan did so with a clear commitment to meet the same level of ambition as the rest of the TPP partners, and it on that basis that President Obama and the other TPP Leaders welcomed Japan’s participation.
“But Japan’s entry into TPP was about more than just a commitment to its partners. It was about a bold and compelling vision laid out by Prime Minister Abe to end Japan’s prolonged period of stagnation by using structural reforms, as well as fiscal and monetary policy, to contribute to economic revitalization.
“Because Japan’s success is so important, we are all watching its economy very carefully. The record is uncertain. We’ve seen growth, and we’ve seen contraction. Right now, in the final weeks of the third quarter, both internal and domestic demand are weak. Real incomes and consumer spending are down. And as Christine Lagarde at the IMF recently said, all of this puts a premium on Japan delivering on the third arrow of structural reform.
“In London, the Prime Minister said, “The Japan that I am pursuing is a Japan that leads to being wide open to the entire world.”
“He asked, “How will we achieve growth? We will open up the country and open up Japan's markets. This is a philosophy that has coursed through my veins consistently ever since I entered politics.”
“This vision matches TPP both in its ambition and its objectives – to support growth and prosperity by unlocking new opportunities for business and workers as well as new benefits for consumers, to tap new sources of domestic demand, to implement reforms in key markets, and to spur productivity.
“It’s a vision that the United States has wholeheartedly supported not only because Japan is one of our closest allies, but also because its success as the world’s third largest economy is vitally important to the global economy. Ending two decades of stagnation and returning Japan to a path of sustainable growth, based on domestic demand, is in everyone’s interests.
“As Prime Minister Abe made clear, TPP has a key role to play in putting Japan on that path.
“When talking about TPP, he said, “What is necessary for Japan's revival is a powerful catalyst that will restyle the old Japan and then make the ‘new’ Japan even stronger.”
“But for TPP to succeed in being that catalyst, it needs be as bold as the Prime Minister’s vision. It needs to be an ambitious, comprehensive and high-standard agreement.
“We’re now at a critical juncture in this negotiation. We are working hard with Japan to achieve our shared objectives. Now is the time for that bold vision to be translated into concrete progress at the negotiating table. We know this is tough, but as the Prime Minister said, “there is no alternative.”
“Undertaking this kind of structural reform is difficult. We know. We did it in autos, we did in in the financial sector, and we’ve done it in health care. But it can be done with political will. Quoting the Prime Minister one more time, “Achieving this will require robust political power that takes on vested interests.”
“We have worked well and hard with Japan in TPP, hand-in-hand, to promote strong rules that reflect our shared interests. We look forward to doing the same to achieve the high level of ambition in terms of opening markets which reflects not only the commitment to all TPP members, but the vision that Prime Minister Abe and the Japanese people have for their own country.
“Now is the time. From the United States’ perspective, there is no premium in delay. Others are certainly not standing on the sidelines.
“The European Union is negotiating FTAs with Japan and Vietnam and finalizing a deal with Canada.
“China is negotiating an FTA with Korea and Australia and, of course, RCEP.
“Australia recently concluded deals with Japan and Korea.
“Right now, there are 500 million middle class consumers in the Asia-Pacific region. That number is expected to grow to 2.7 billion by 2030. They are going to want more protein, a higher nutrition, better and safer food. They’re going to need everything from machinery to and consumer goods. And they’re going to want a wide choice in services, from entertainment to health care. We want to be part of their future. The Made-In-America brand is a strong one. And exporting more Made-in-America products drives the creation of good jobs here at home.
“The economic costs of failing to compete are clear. But consider also the strategic costs.
“The United States would forfeit its seat at the center of the global economy. It would be left to be shaped by globalization, rather than be in a position to shape it.
“We’d watch standards deteriorate rather than improve, and that just cannot be in the interest of American workers and American firms.
“And we’d see our partnerships deprived of the strength that comes from enhanced economic engagements in a world that is increasingly unpredictable.
“As President Eisenhower warned Congress six decades ago, “If we fail in our trade policy, we may fail in all. Our domestic employment, our standard of living, our security, and the solidarity of the free world – all are involved.”
“The stakes of our trade policy, economic and strategic, are even greater in this century than they were during the last.
“Thank you very much.”