The TPP is likely to empower China in the long-run [View all]

[cali]

President Obama apparently recognizes that China's rapidly growing economy and military pose significant problems for the US and the rest of the world. In response, he urges swift passage of the Trans Pacific Partnership (TPP). "If we don’t write the rules, China will write the rules out in [the Trans-Pacific] region" Obama warned in a Wall Street Journal interview. That outcome would mean: “We will be shut out—American businesses and American agriculture. That will mean a loss of U.S. jobs.” The President's analysis is flawed.

China's economic rise since 2000 stems directly from a massive net influx of American capital due to its remarkably favorable trade balance. This results from several interlocking factors: (1) China's ownership of vast stores of natural resources around the world coupled with (2) its enormous and very cheap working class enable manufacturers there to produce finished products for the US market at a cost domestic producers cannot match. (3) China's undervalued renmimbi (RMB) exacerates the American cost disadvantage. The Chinese Communist Party's ongoing practice is to buy dollars with RMB thus driving the dollar up relative to the RMB.

There is nothing in the TPP that addresses any of these factors. The TPP does not confer upon developing countries like Vietnam any significant competitive advantage that they do not already possess vis-a-vis China. For example, the TPP does not significantly reduce any tariffs protecting the US manufacturing sector from predation by producers in signatory nations.

The TPP does not address currency manipulation. Of course, even if it did, that would mean little with respect to China since it is not a party to the TPP negotiations. Likewise, it appears that the TPP does not preclude its members from entering into exclusive sales agreeements with respect to natural resources with particular countries. So China's ongoing efforts to corner various natural resources will likely continue unabated.

The President claims that if we don't help write the rules governing commerce along the Pacific rim in Asia, China will. It is unclear what specific rules the President fears. Moreover, it is hard to see how any economic rules China imposes on poor Southeast Asian nations would materially benefit what may already be the world's largest economy. China's muscle comes from its three-headed hydra of cheap labor, cheap raw materials, and cheap currency coupled with nearly unfettered access to US markets. New rules governing Vietnam and Malaysia won't change this.

Good Read:

http://dagblog.com/tpp-likely-empower-china-long-run-19560