Specific trade deals might be good or bad, but that’s specific to the deal; such efficacies don’t say much of anything about free trade or free trade deals in general. There are, in fact, two primary reasons for encouraging free trade, zones of free trade, and the deals that enhance free trade and generate free trade zones. One reason is the economic benefits for the partners of the free trade deals, including lower costs—and so downward pressure on price inflation—for the citizens of the nations involved, and net (if small) job creation, which stems from those lower costs and domestic companies benefiting from the increased demand that flows from those lower costs. It’s true that particular jobs disappear as production moves to lower cost areas (and that’s true for entirely domestic regions, too), but other jobs get created as other businesses crop up to take advantage of production shifts.
The other reason, though, and the reason that’s the emphasis of this piece, is free trade and free trade zones as instruments of foreign policy. There are lots of ways free trade operates here, ranging from enhancing relationships among the members of the free trade arrangement to demonstrating the economic benefits of free markets to potentiating the freedoms associated with free markets to countering the influence of our enemies.
The Trans-Pacific Partnership pending deal and the People’s Republic of China’s responses present an example of that last. The TPP initially involved a dozen nations rimming the Pacific including the US, Canada, Chile, and Peru on the eastern side and, importantly, including Japan and many of the nations surrounding the South China Sea. Recall that the PRC has seized and is actively occupying the South China Sea and is attempting to seize the East China Sea; these aggressions are at the direct expense of those South China Sea nations and of Japan. Aside from the naked grab aspect, the PRC’s behavior is aimed at harming American interests in the Pacific through those harms to our friends, allies, and potential allies, the aggressions are aimed directly at those nations: to subordinate them economically, and then politically, to the PRC. Keep in mind that 30% of the world’s seaborne trade goes through that South China Sea, including more than $1 trillion of trade bound for us, with the bulk of the rest not going to the PRC being critical to the economies of those rimming nations and Japan.
The TPP by design did not include the PRC. The failure of the TPP is being filled by a PRC-led trade pact in the offing in conjunction with its in-progress Regional Comprehensive Economic Partnership. But neither this new trade pact nor the RCEP are agreements among trade equals. The members of these deals will be required to toe the PRC line regarding censorship, intellectual property rights, cyber security, so on.
In the next five years, China will import $8 trillion of goods and invest $750 billion abroad, [PRC President Xi Xinping] said.
Those are $8 trillion of goods—and services—that could be going to members of the TPP and to us rather than to the PRC. Further, that trade imbalance—to the extent that President-elect is correct about trade imbalances—constitutes a lever that could be used to…encourage…the PRC to withdraw from its occupation and attempted occupation of those two Seas. Frankly, I don’t think Trump is right on trade imbalances, per se, but the economic isolation of the PRC possible from those numbers, to the extent Xi believes it, still represents a long lever.
Japan has gone ahead and ratified the TPP, and other members of the pending pact should do so, as well. This would not only work to the mutual prosperity of the ratifiying nations, it could serve as a strong economic check to an aggressively expansionist PRC. The economic integration potentiated by the TPP would enhance the region’s own leverage against the acquisitiveness of the PRC by making them, as a group even without us, much closer to the PRC’s equal in economic power and leverage. Details of the deal may well want improvement, but that should be for Round Two of the negotiations while the deal’s effectivity and weaknesses are observed empirically.
The containment of the PRC makes the deal as it stands worth it. Especially with a Round Two.