Why free trade deals are a tough issue for the US

Though free trade backers scored an important victory last Friday with the passage of the Trade Promotion Authority (TPA) Bill through the Senate, no one is celebrating just yet.

If anything, all agree that the biggest battles still lie ahead. If United States President Barack Obama is to have any hope of completing a landmark free trade deal with Asia before his time in office is up, then he will have to win the legislative battle of his life.

While gridlock in the US capital tends to be driven by bitter partisanship and crude politicking, something more fundamental is at play in the free trade debate.

Here seems to lie a genuine ideological battle about whether opening up trade with other countries is a boon or a bane.

The divisiveness of the issue has been evident in the difficulty Congress is having in passing a Bill that does nothing more than make it easier for the President to negotiate free trade deals.

The TPA Bill that just made it through the Senate sets up an expedited legislative process for any prospective free trade agreement. It prevents Congress from amending the deal the President makes, allowing members to vote only either for it or against it.

The White House considers the TPA essential to concluding ongoing talks on the 12-nation Trans-Pacific Partnership free trade deal, arguing that negotiating partners will be reluctant to put their best offers on the table if domestic legislatures are allowed to tinker with it after the fact.

Still, the pursuit of just the TPA has already left Mr Obama with egg on his face.

Last week, a group of Democrats made a rare and, largely, unexpected move of filibustering the TPA legislation supported by a president from their own party.

The issue has also seen angry exchanges between President Obama and the leader of the anti-TPP faction, Democratic Senator Elizabeth Warren.

The problem Mr Obama faces in trying to fulfil his trade agenda centres on the fact that the question of whether free trade deals are a good thing for the economy has no clear-cut answers for Americans. The perspective changes depending on where you stand.

At the national level, free trade deals like the TPP are an unambiguous good. Taken as a whole, increasing trade has a positive impact on the national economy. It also helps boost bilateral ties and raise the global standing of the country.

From the perspective of lawmakers, the situation is flipped.

When the lowering of a tariff makes it cheaper for a company to move manufacturing overseas and then import the goods back to the US, the lost jobs are felt keenly at the local level.

Senator Angus King, whose ward is home to New Balance shoe factories, recently told The New York Times: "I've been to those New Balance factories. I've looked those people in the eye."

In this sense at least, ideological lines are not drawn according to party affiliation. This is a President-versus-Congress issue more than a Democrat-versus-Republican one. And even though Republicans have been historically more pro-trade, Mr Obama will have to win over his fair share of Grand Old Party (GOP) members in the months ahead.

What makes the problem more difficult is that the US has a patchy history with free trade deals.

It is often said that the TPP will be the biggest FTA the US has inked since the North American Free Trade Agreement, or Nafta. But that deal - signed with Canada and Mexico - does not always evoke the best of memories for Americans. In fact, some lawmakers still have a Nafta hangover.

Long-serving Senator Barbara Boxer, a Democrat from California, recently brought up Nafta in Congress while debating the TPA Bill.

She said: "In 1988, I voted for fast-track authority to allow the administration to negotiate Nafta. Instead of the million new jobs that were promised, by 2010, the United States had lost 700,000 jobs."

While her comments probably exaggerate the impact of the deal - much has changed in the global economy in the two decades since Nafta was signed to lay all the blame there - the deal certainly did not live up to the hype. The non-partisan Congressional Research Service said the impact of the deal was "relatively modest".

Critics like Senator Warren warn that the TPP could be significantly worse than Nafta.

They argue that lowering the barriers to trade with Asian countries without simultaneously enforcing higher labour standards and curbing currency manipulation would put the US at a disadvantage.

They say that liberalising trade with a low-wage state like Vietnam would depress wages in the US. Currency manipulation, in turn, would artificially raise the cost of US exports while lowering the price of its imports, further widening the US trade deficit.

It is this reasoning that prompted a late push last week to tie currency manipulation rules to the TPA Bill. That measure did not get bundled into the trade Bill.

The pro-trade camp sees things rather differently. It argues that US tariffs on many goods are currently lower than many countries it trades with, meaning American exports are already at a disadvantage. Getting a free trade deal would thus level the playing field, increase the market for US goods and create jobs.

Again, past experience provides few definitive clues as to who is right. Nafta may have increased US exports to Mexico, but it increased imports by a larger margin.

Even then, the impact is not linear. A large proportion of goods imported from Mexico had a US origin. Many were designed in the US or were made with raw materials from the US.

All that means is that supporters and critics from both sides, looking to make the argument that Nafta has created or killed jobs in the US, can find something to back up their claim.

In Congress, that translates into a lot of people with firmly held, but completely differing, views on free trade.

The path forward for TPA, and eventually the TPP, becomes more treacherous in the months ahead.

The last time the US Congress passed a TPA, it was by the skin of its teeth. It prevailed in the House of Representatives in 2002 by a vote of 215 to 212.

The vote this time round won't be any more comfortable.

jeremyau@sph.com.sg

This article was first published on May 26, 2015.
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