To Call Trade Deal ‘Nafta on Steroids’ Picks the Wrong Target - Greg Ip

OK, it is from the WSJ, but the data are interesting.

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In labeling the Trans-Pacific Partnership “Nafta on steroids,” though, critics may have picked the wrong target. It is not the two-decade-old Nafta but China’s accession to the World Trade Organization in 2001 that offers the cautionary tale to legislators who must vote again once this week on whether to give Mr. Obama authority to complete the TPP.

With both Mexico and China, the U.S. hoped not just to benefit from increased exports, but to encourage liberal reforms in that country and strengthen geopolitical relations. Of the two, Nafta came closer to filling that promise.

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Nafta did cost some workers jobs or pay, but on net, both countries were better off as a result, though it is difficult to prove given the diversity of influences on both countries’ growth, the small size of Mexican trade relative to U.S. and the many obstacles to development Mexico’s poorer households still face.

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China used the WTO as a spur to overhaul inefficient state-owned enterprises and introduce market-based reforms, which helped propel a remarkable rise in Chinese living standards. With the threat of higher tariffs significantly reduced, Western firms set up shop in China to export products back to the U.S., and imports from China boomed. American workers suffered on a far greater scale than they did from trade with Mexico. One study concludes increased trade with China cost more than two million U.S. jobs.

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Several factors limited the success of U.S. producers in China. As with Mexico, one was a cheap currency. But unlike Mexico, China kept its currency down as a deliberate policy to bolster exports and suppress imports, enforced through capital controls. And unlike Mexico, trade liberalization with China did not produce a broadly more liberal economic and political regime. The liberalizing impulse that surrounded WTO accession started to fade around 2006. China largely adhered to its WTO obligations, but found multiple avenues to subsidize domestic enterprises, and discriminate against foreign firms. China became more politically repressive at home and confrontational with its neighbors.

Given how low U.S. tariffs already are with most TPP countries, its impact is likely to be far smaller than with either Nafta or China’s WTO accession. Nonetheless, there are lessons. One is that the impact of a trade agreement can be swamped by other factors such as currency policies. Defining currency manipulation without compromising legitimate monetary policy is probably still too difficult to insert into TPP. But it’s a good reason to be wary of admitting China for the foreseeable future.

The second lesson is to take promises of noneconomic trade liberalization benefits with a grain of salt. To be sure, those countries who want to use TPP to liberalize their economies should be cheered on. But whether they ultimately succeed will depend less on the treaty and more on each country’s political priorities.

http://blogs.wsj.com/economics/2015/06/15/greg-ip-to-call-trade-deal-nafta-on-steroids-picks-the-wrong-target