Mark Mellman: Trade politics

No one — not the press, not the White House, nor anyone else — should have been truly surprised by the outcome of the House trade vote last week. 

Republicans frequently oppose bills they actually support, to prevent the president from enjoying a victory.

{mosads}At the same time, most Democrats have long expressed concern about the impact of trade agreements. 

Advocates of the Trans-Pacific Partnership (TPP) would have you believe that opponents merely need to curl up with Adam Smith or David Ricardo and their more than 200-year-old volumes to get wise about the obvious benefits of free trade. Whatever one thinks of the agreement, however, this answer and the thinking behind it are fundamentally flawed.

Today there are real doubts about how the trade theory applies to our reality. 

Neither the TPP, nor any of the other trade agreements into which the U.S. has entered, resemble the “free trade” envisioned by Ricardo and Smith. None of the technical assumptions — perfect competition, zero transportation costs, etc. — are possible in real-world conditions.

Moreover, these are not really free trade agreements at all; rather, they are managed trade. And the way in which trade is being managed is the question.

Lurking behind this concern is an empirical question about which Smith and Ricardo are necessarily silent: who gets helped and by how much?

Two different econometric models (and the only ones I know of) suggest that implementation of the TPP will increase our gross domestic product by less than two-tenths of 1 percent by the year 2025 — that’s less impact than the iPhone had on U.S. GDP in a much shorter period.

But not everyone will gain equally. In fact, studies predict that, while those at the top will see their incomes increase as a result of the TPP, everyone else could see slight reductions in their incomes as a result of the agreement.

The TPP may be good for that abstraction we call “the economy” and for those Americans already doing well, but, as written, there is little evidence it will help those who aren’t at the top, and indeed, it may well further erode their economic standing.

Few Americans earned Ph.D.s in economics, but nonetheless, the public as a whole appears to intuitively understand this distinction. 

In recent Pew polling, people divided evenly on whether free trade was good for the economy. However, by 46 percent to 11 percent, Americans believe free trade make wages lower rather than higher.

Long before these concerns were evident to anyone, Whig historian Thomas Babington Macaulay, himself a free trade proponent, lamented the problem of free trade in democracies, writing, in 1824, “Free trade … is in almost every country unpopular.” America has, to some extent, surpassed Macaulay’s expectation. Few Democratic officeholders reflexively oppose free trade.

Their concerns focus on the specifics of the agreements.

For example, Rep. Sandy Levin (D-Mich.), the ranking member on the House Ways and Means Committee who is leading the effort to improve the TPP, has opposed some trade agreements in the past and supported others, depending on the specifics of their contents (full disclosure: Levin is a client and dear friend). 

Leader Nancy Pelosi (D-Calif.) also publicly stated her interest in finding “a path to yes” on the TPP.

To that end, Levin made clear what an agreement would need to contain to garner his support and that of like-minded Democrats. 

In January, he identified 12 specific problems with the TPP and offered potential solutions. The problems ranged from Japanese discrimination against U.S. auto imports (Japan imports one American vehicle for every 100 Japanese cars imported by the U.S.) to dealing with currency manipulation, workers rights and environmental standards. 

Apparently not one of his concerns was met. 

The failure here was not of inadequate presidential schmoozing; rather, the disagreement with the president was one of substance, which is not easily papered over.  

Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the minority leader of the Senate and the Democratic whip in the House.