President Obama might be a little disappointed to be leaving negotiations in Japan without a finalized Trans-Pacific Partnership (TPP) agreement.
I suspect he's been listening to the wrong people; those proponents who have made much noise about how imperative it is to complete a deal. Some have noted its massive scale, and some have bemoaned a perceived lack of U.S. leadership in the talks. Without the TPP as its centerpiece, say others, the grand U.S. pivot to Asia will become unhinged.
But lost in this rush to secure a pact is what the TPP (and every other trade agreement) should actually accomplish: A more balanced U.S. trade account that ultimately benefits the American middle class, which recent reports show could use some help right about now. Unfortunately, America's track record on trade policy has pushed our trade deficits in the wrong direction and weakened the middle class. And despite the Obama administration bromides that this will be a "21st century trade agreement," it's hardly certain that the TPP will be any different, at least when it comes to deterring currency manipulation.
With that in mind, I say a good trade deal is well worth the wait and effort.
We've already seen what's happened when trade policy is inexpertly wielded as a tool of foreign diplomacy. Consider the debacle of permanent normalized trade relations with China in 2000. In exchange for the promises of a more open Chinese society, a Republican Congress and a Democratic president removed the threat of annual review of tariffs on Chinese imports. This resulted in none of the hoped-for democratic reforms (if anything, China has used its funding stream courtesy of our burgeoning trade imbalance to become more belligerent) and massive job loss in the U.S. manufacturing sector.
But while China and Japan couldn't be more different in terms of domestic governance, they share a remarkable similarity in international economic policy: Both regularly distort their currency exchange rates to push their trading surpluses with the U.S. high and keep them higher. Despite that fact, no U.S. action has been taken against China or Japan for manipulating their currency. And though there is much secrecy around the details of the TPP proposal (of which Japan is a potential party and is, as the world's third largest national economy, the most important negotiator aside from the U.S.), a rule barring currency manipulation has most certainly not been discussed.
That's both unfortunate and shortsighted, but maybe the president will use the extra time afforded by this TPP impasse wisely. He wouldn't be first to reconsider a position on trade policy. Decades of data have proven that an agreement at all costs is hardly one worth signing, and many free-trade heavyweights (Joe Stiglitz, Paul Krugman, Simon Johnson, and the New York Times editorial board among them) have already changed their tune.
Will President Obama do an about-face? In the early days of his administration, the president rightly chided the Clintonites in his administration who negotiated such a terrible deal with China 10 years prior. I can't imagine he'd want the next administration to be saying the same thing about a rushed and flawed TPP.