Keep Trade About Trade

After a heated battle last month, the U.S. Senate voted to pass the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, commonly known as trade promotion authority, which gives the president the ability to negotiate trade deals and submit them to Congress as a whole for an up or down vote, which, these days, is an essential step towards passage. The fight now moves to the House of Representatives, where passage is critical as both chambers must agree on the final text of the pending trade promotion authority bill.

A vote is expected in the House before the end of the month on this grant of authority to President Barack Obama. Ironically, it will be largely supported by Congressional Republicans. In anticipation of the vote, it is worth reviewing the effects of both isolationist policies and open trade on the American economy.

When trade policies have sought towall-off our economy from the rest of the world, we have suffered. In a misguided attempt to insulate America from global economic competition, the protectionist "Smoot-Hawley" Tariff Act of 1930 caused significant strain to an economy already entering the Great Depression. While it succeeded in reducing imports, it also raised the average price of consumer goods, limited export opportunities, hurt the bottom line of American companies and prompted retaliatory measures from foreign governments.

To reverse the damage, Congress passed the Reciprocal Trade Agreements Act of 1934 granting expanded trade authority to President Franklin Delano Roosevelt. Beginning with that law, every president since FDR has had trade authority in his toolbox of economic measures. The benefits of what was previously called "fast-track," a term which has now fallen out of favor, are indeed necessary. Domestically, it prevents special interests from hijacking trade negotiations. Equally as important, it gives our negotiating partners the confidence that the president can, in fact, get acarefully-negotiated trade agreement through Congress.

Like opponents of trade promotion authority now, some members of Congress in the 1930s considered it a surrender of constitutional powers to the presidency and took issue with the economic merits of free trade. However, contrary to their beliefs, trade authority enabled FDR to take measures that allowed U.S. companies to expand their workforces and prosper, contributing to a reversal of one of the worst economic periods in American history.

More recent challenges to free trade have grown less and less relevant to the actual economic merits of the agreements. In the last several decades, both Republican and Democratic administrations have been pressured to include ever-more-extensive provisions on labor and the environment in trade agreements to satisfy domestic interest groups. While these goals are often laudable, trade agreements are not necessarily the appropriate forum to address or enforce them. The U.S. is a party to international conventions and organizations which are devoted specifically to promoting labor rights, humanrights and environmental standards. For America's trading partners, including restrictive provisions on such standards will make their own approval process more complicated given many domestic political considerations.

Of the trade agreements currently under negotiation, the Trans-Pacific Partnership, a massive trade pact involving the U.S. and 11 Pacific Rim nations is first in line for consideration. Included in the agreement are the requisite labor and environmental standards. For companies seeking recourse against foreign governments, it provides an Investor-State Dispute Settlement mechanism. The latter has arguably been the most misconstrued provision in the recent free trade debates. Members of Congress opposing thepact have morphed this provision, which has existed in U.S. treaties for decades for the benefit of American companies, into a conspiracy theory out of a spy novel. It has been portrayed as creating secret tribunals with the power to override domestic laws. The reality is altogether different. The mechanism was created precisely because Western companies assumed risk when doing business in countries with politicized or underdeveloped legal systems. To the extent that risk still exists today, Investor-State Dispute Settlement is a desirable part of these agreements.

Contentious as well is the proposal that combating currency manipulation be made a primary negotiating objective of trade deals. However, the usual target of critics, China, is not a party to the Trans-Pacific Partnership. Focus has shifted, therefore, to the Japanese currency, as Japan is the other large economy that is a party to the deal. The reality is that many currencies are adjusted, even by the U.S. Federal Reserve, for a variety of reasons, and the White House has threatened a veto if trade promotion authority comes with currency provisions attached. In any event, the U.S. Senate has already passed separate legislation with currency manipulation provisions targeting China. The passage of the Trans-Pacific Partnership could bolster Japan as an economic counterweight to China in the region. As the Senate recognized in a vote rejecting a currency manipulation amendment to trade promotion authority, to make it the albatross around the neck of a trade deal is to doom an agreement with the potential to bring significant benefits to the American middle class.

The American worker will continue to be impacted by an evolving global economy and a small portion of those workers will face displacement from trade agreements. The solution is not to revert to protectionist measures, it involves recognizing the variety of reasons (including technology and automation), that have contributed to job loss, and exploring the variety of solutions available to properly outfit the American worker to succeed in a changing global environment. Preventing currency manipulation, as well as promoting human rights, fair laborstandards and strong environmental protections, are sound ideals and objectives. Yet there are already many existing forums to do so meaningfully. So let's consider trade agreements on their own merits, in the interest of American economic recovery.