The U.S. Senate on Tuesday voted against giving the president so-called fast-track authority to proceed with a sweeping new trade agreement.

The political maneuver involved seven Democrats crossing the aisle to vote 52-45 against easing the acceleration of the trade accord--which President Obama has offered as something of a capstone to his second term in office. The pact, known as the Trans-Pacific Partnership, is the biggest trade deal since the North American Free Trade Agreement (NAFTA) went into effect in 1994--and would deeply impact U.S. exports and imports.

Broadly, it would allow for swifter trade relations with 12 member countries including Japan and Malaysia. Specifics regarding the deal are limited, as few people outside of government have seen the trade bill in its entirety. Though WikiLeaks has published some of the pact's chapters, as they appeared in 2013.

While free trade deals typically promise to impart economic growth and prosperity on participating countries, this specific deal is likely to face additional assaults in the weeks to come. Indeed, policy watchers say, this is likely to be the first of many setbacks for a pact that has been hotly politicized and contested by conservatives and liberals alike. And if it's not already abundantly clear, if the trade deal passes (or doesn't) it could have a major impact on your business.

"The deal from an objective perspective would be good for American consumers, businesses, and employees, but it's hard to sell trade to legislators," says Jim Kessler, senior vice president for policy and co-founder of Third Way, a centrist policy think tank in Washington, D.C. While it's hard to judge what's actually problematic about the pact, since details have been limited, the bill has nonetheless provoked fury from labor representatives and liberal Democrats, as well as some Republicans. 

Naturally, the latest Senate defeat puts the ultimate passage of the deal in doubt, especially as many experts believe a vote in that chamber had a better chance of passing than in the House. But Kessler is still optimistic that the accord will ultimately pass--and with more than 60 votes no less.

Trade agreements in the U.S. are typically negotiated in sidebars between countries, with the president eventually getting authority to finalize agreements without congressional amendments. In the end, Congress must give a straight up or down vote on the agreement. 

Here's a quick breakdown of the arguments:

Pros:

  • The TPP would lower tariffs and ease trade among countries responsible for about 40 percent of global Gross Domestic Product.
  • The TPP would be good for U.S. trade deficit, and would provide new markets for American goods and services.
  • The TPP would give the U.S. a leading voice in Asia and among Pacific Rim nations, rather than ceding the trade role to China, which has its own trade agreement, known as Regional Comprehensive Economic Partnership (RCEP), in the making. China is widely regarded as having lower standards than the U.S. for labor and the environment.
  • The trade deal could allow the U.S. to negotiate an end to currency manipulation, which keeps the value of some our trading partners' currencies artificially low, and which in turn amplifies the U.S. trade deficit.

Cons:

  • Trade agreements can trigger reduced jobs for workers in richer nations, as jobs are shipped offshore to places where workers are paid less. Opponents of the pact say it will cost tens of thousands of jobs domestically.
  • Labor standards, specifically around forbidding child, imprisoned or slave labor, aren't tough enough critics say.
  • Environmental standards are similarly weak, and do not provide an adequate forum to address complaints.
  • Too much authority is given to individual corporations, over the countries in which they do business, some critics say. Specifically, something called the Investor-State Dispute Settlement provision would allow companies to sue host countries for harming the firm's profitability.

Not the Same-Old Trade Pact

In some respects, the trade pact could be an improvement on others that have been passed in the last 20 years, particularly with regard to worker standards, some trade agreement experts say. At an event aimed at drumming up support for the trade deal at sneaker manufacturer Nike last week, at the company's Beaverton, Oregon headquarters, the president highlighted how the TPP would be different from previous treaties:

It's the highest-standard, most progressive trade deal in history. It's got strong, enforceable provisions for workers, preventing things like child labor. It's got strong, enforceable provisions on the environment, helping us to do things that haven't been done before, to prevent wildlife trafficking, or deforestation, or dealing with our oceans. And these are enforceable in the agreement.

While critics, including Senator Elizabeth Warren (D, Massachusetts), dispute those assertions, the TPP could boost standards. And of the trading partners, which include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam, the U.S. has pre-existing agreements with more than half. (Those countries include Australia, Canada, Chile, Mexico, Peru, and Singapore.)

"The impact of this agreement has been hugely exaggerated by the administration and its critics," says Dean Baker, co-director of the Center for Economic and Policy Research, who adds that he does not think there will be a huge outflow of jobs, as there was under NAFTA, mostly because partners in that agreement are also included in this one.

One of the biggest opportunities from the trade agreement would be the potential to rein in the value of the dollar by ending currency manipulation by our trading partners, which in turn would reduce our trade deficit, says Baker. China, with $4 trillion in reserves, is the worst offender as it keeps the yuan below the value of the dollar. Although China is not part of the TPP, it could potentially be added in the future. 

Additionally, the U.S. has had low economic growth for much of this decade, barely nudging above 3 percent in the past few years. And free trade agreements over the past 15 years have been shown to boost exports and improve trade deficits, according to some research.

The U.S. has had a trade surplus of $31 billion in the 17 countries with which it currently has trade deals since 2000, according to research from centrist think tank Third Way. What's more, exports to the same countries increased 52 percent over the same time period, while imports increased at a much lower 25 percent.

Conservative business groups, such as the U.S. Chamber of Commerce are also paying lipservice to some of these ideas. Specifically, it expects the TPP to boost U.S. exports by $124 billion by 2025. Here's what the Chamber had to say in an April press release:

The Trans-Pacific Partnership (TPP) is America's best chance to ensure the United States isn't stuck on the outside--looking in--as Asia-Pacific nations pursue new trade accords among themselves. Its objective is to achieve a comprehensive, high-standard, and commercially meaningful trade and investment agreement with 11 other Asia-Pacific nations

And perhaps more important, experts say a failure by the U.S. to map out a trade agreement in Asia will weaken the standing of the U.S. abroad. Specifically, countries such as Vietnam and Malaysia want an agreement with the U.S. that will allow them to build economies that will ultimately look more like Korea and Japan, both with strong middle classes.

"The reason these other countries want TPP is because they would rather have an economic system in Asia that looks more like the U.S. than China," Kessler says.

If the TPP fails, Kessler proclaims elegiacally: "Historians will note this moment as when the torch passes from America to China."

Published on: May 13, 2015