Pacific trade deal shows Democratic divisions on economy

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Japanese Prime Minister Shinzo Abe and President Obama have been working on a Pacific trade deal.

President Barack Obama is fighting an uphill battle in seeking congressional approval for so-called "fast track authority" to conclude a Trans-Pacific Partnership trade agreement, which would include 12 countries representing about 40 percent of the world economy.

Fast-track authority gives presidents leeway to submit trade agreements to the Congress for an up-or-down vote on their entirety, rather than seeking provision-by-provision approval, which almost certainly would doom the agreements' chances.

Besides the United States, the countries in the proposed partnership are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – nations with whom the nation and Washington state have important ties.

Even in trade-dependent Washington, whose economy lives on exports of aircraft, agricultural and high-tech products, voices from labor and the left are being raised against fast-track authority.

Nationally, Democratic Sen. Elizabeth Warren, a possible contender for the Democratic presidential nomination, is spearheading opposition. Hillary Clinton, the Democratic frontrunner who previously endorsed Trans-Pacific Partnership (TPP), is now equivocating. Senate Democratic Leader Harry Reid actively is opposing TPP fast-track authority, as are some 15 other Democratic senators, including Barbara Mikulski and Al Franken who have announced they are organizing an anti-TPP campaign.  Oregon Sen. Jeff Merkley and Rep. Peter DeFazio, during a recent Obama visit to to their state, told him they were opposed, although Sen. Ron Wyden is a leading voice for approval.  House Democratic Leader Nancy Pelosi, from trade-reliant San Francisco, has stayed on the fence, reflecting mixed opinion in her caucus.

President Bill Clinton got congressional approval for the North American Free Trade Agreement (NAFTA) in late 1993 only because of strong Republican support. Since that time Democrats have moved even further away from liberalized trade and investment.

What is going on here and what are the stakes?

Democrats once were the party of free trade and Republicans the protectionists. The global depression of the 1930s took place in part because, when economic weakness hit major countries, they responded by closing their borders to foreign goods and investment -- thus making the damage far greater than it otherwise would have been. The notorious Smoot-Hawley domestic legislation raised U.S. tariffs on foreign products. President Franklin Roosevelt attempted to reverse the damage in 1934 when he won congressional approval for a Reciprocal Trade Agreements Act, which authorized him to conclude international trade agreements.

The United States economy emerged as globally dominant after World War II as other countries struggled to recover from the war. This led Americans to believe that, because of their technology and productivity, they would remain dominant. President John F. Kennedy had broad support from Democrats, and especially from organized labor, when he proposed the landmark Trade Expansion Act of 1962, which authorized him to conclude global agreements liberalizing trade and investment.

The United States, at the time, enjoyed a 2-to-1 trading advantage with the rest of the world -- that is, we sold twice as much abroad as we bought abroad. It was easy to be a free trader. The so-called Kennedy Round of global trade negotiations, which followed, knocked down all countries' barriers to trade and investment.

The Kennedy Round was concluded in the mid-1960s, after Kennedy's death. One of my duties as Vice President Hubert Humphrey's assistant was to cover international trade policy. I will never forget the Saturday morning when the Kennedy Round was successfully concluded. I sat with the two aides to President Lyndon Johnson responsible for trade policy as we talked on the speakerphone with our negotiators in Geneva, Switzerland, and gave White House approval to the deal they had made. Francis Bator, Johnson's National Security Council assistant responsible for financial and economic policy, broke out a bottle of champagne. Our Geneva negotiators did the same on their end of the line. (I felt awkward drinking champagne at 10 a.m. on a Saturday morning in a government office.)

Republicans by then had shed their Old Rust Belt protectionism and joined in bipartisan celebration of the deal. Subsequent global liberalizations would take place over the next 20 years. The United States, however, no longer enjoyed its post-World War II economic dominance. Other countries had rebuilt their economies and were becoming internationally competitive. Unsurprisingly, principles of comparative advantage began being felt.  Some countries could produce certain goods more efficiently than others; they captured a share of international markets.

The United States no longer could be a winner in all sectors. A shift began taking place domestically from old industry to new. Steel and automobile unions, which in 1962 had been avid supporters of Kennedy's Trade Expansion Act, now became avid opponents of such legislation.

Fading industries and occupations found it easier to blame "unfair foreign competition" for profit and job losses than to recognize that the United

States now was part of a global economy in which winners and losers, sector by sector, were shifting according to economics' natural order of things.

Bill Clinton, as a 1992 presidential candidate, wrestled with the idea of NAFTA, which was strongly opposed by many industrial unions. It was no easy call. For one thing, a free-trade deal among the U.S., Canada and Mexico would exclude other countries and, therefore, harm the economies in particular of Caribbean nations on the outside. There also was the problem that the U.S. and Canada were advanced, free-trading economies while Mexico's was flagrantly protectionist. Clinton finally came down on the side of the agreement. To attract Democratic and constituency support, he pledged that environmental and labor standards would have to be met by Mexico -- the first time that such provisions had been introduced into such agreements.

NAFTA eventually passed, with stronger Republican than Democratic support. It has resulted in greater trade among the three countries. Perhaps most importantly, it has opened the Mexican economy and helped provide greater stability to that country. But U.S. constituencies, in the aftermath, have felt that Mexico has not responded sufficiently in meeting labor and environmental standards. Mexico (and other countries) have felt that they simply cannot meet U.S.-dictated environmental and labor standards and that such standards are only a smokescreen to give U.S. domestic producers an advantage.

Domestic constituencies have wanted, since NAFTA, to attach all kinds of provisions that have nothing to do with trade into any proposed trade deals. Our partners don't want to make such deals, saying such issues should be addressed outside trade negotiations.

Global, multilateral negotiations, such as those in the Kennedy Round and subsequent Nixon and Tokyo Rounds, have become impossible. The World Trade Organization, the venue for global trade/investment negotiations, has however remained useful in enforcing trade rules and hearing complaints, helping to keep trading countries honest.

The United States has negotiated some bilateral agreements, all controversial in Congress. The arguments in their favor have been that each deal would benefit U.S. exporters and investors. No longer does Kennedy's "a rising tide lifts all boats" argument, made on behalf of his 1962 Trade Expansion Act, have political resonance.

It's hard to make a case that the United States would benefit greatly commercially from a TPP agreement. Some protectionist measures would be attacked in all 12 countries -- though our levels of protection, by now, are low. A recent study by the Peterson Institute, a pro-free-trade think tank, concludes that a deal would result in minimal added economic growth in the 12 countries over the next 10 years.

Is the Trans-Pacific Partnership worth the political battle presently taking place around it? In economic terms, probably no. But a TPP failure would signal unmistakably that the post-World War II free-trading era finally was over. It also would give China, not a part of the deal, a strong argument that countries of the region should fall within its financial and economic orbit rather than wasting time in dead-end negotiations with the United States.

After the fact, I've thought that NAFTA was a mistake and that President Clinton would have been better served to focus on the global liberalization path established by JFK and subsequent presidents of both parties. The same could be said for the pending Trans-Pacific deal. But, just as with NAFTA, it is a close call.

What is most discouraging is the fact that important domestic opinion --especially in the Democratic Party and labor movement -- is tilting toward the same kind of thinking that led Depression-era Rustbelt Republican industries to blame foreigners for domestic dislocations and contribute to a global collapse.

The reality is that the old smokestack industries and jobs will continue to wane in the United States, to be replaced by new-economy industries and jobs.

It is a difficult transition for workers unschooled, unskilled and unready for a changed American economy. But American financial and economic power still surpasses those of any other country. We will be long-term economic winners if we invest in education, training and retraining for our future workforce and recognize that the former world will never return. Change happens and it's not necessarily anyone's fault.


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About the Authors & Contributors

Ted Van Dyk

Ted Van Dyk

Ted Van Dyk has been active in national policy and politics since 1961, serving in the White House and State Department and as policy director of several Democratic presidential campaigns. He is author of Heroes, Hacks and Fools and numerous essays in national publications. You can reach him in care of