Magazine article The American Prospect

Not a Great Deal for Asia

Magazine article The American Prospect

Not a Great Deal for Asia

Article excerpt

The Trans-Pacific Partnership is best understood as President Barack Obama's extension of the Bush-era doctrine of "competitive liberalization." Frustrated with pushback at the World Trade Organization by nations like China, Brazil, India, and South Africa, the United States seeks a coalition of the willing to import a commercial framework that rewards private firms at the expense of the common good. That policy regime is ailing in the U.S. and gets worse when exported.

The Trans-Pacific Partnership (TPP) certainly isn't about raising standards of living. The most ambitious estimates of the gains from the TPP suggest that participating nations will gain a mere one-tenth of 1 percent of the gross domestic product. Sixty percent of the projected gains go to Vietnam and the United States, and the other 20 percent goes to Malaysia--largely because the U.S. already has trade pacts with the other proposed big players in the TPP.

However, the proposed deal is far from popular in Asia. In exchange for the small portions of trade and growth that will go to some big exporters and foreign investors, each TPP nation will have to give up many of the policies they use to make trade and foreign investment work for employment, growth, and financial stability.

Two of the more strategic globalizers in recent years, the Vietnamese and Malaysian governments, played an important role in inserting their nations in the global economy and spreading the gains across their societies. Vietnam, a key destination for foreign firms to locate and re-export, has been able to translate that investment into employment and growth while also shielding itself from financial shocks. A major study by the Singapore-based Institute for South Asian Studies found that Vietnam's attraction of foreign investment has increased both savings and capital formation, strongly contributing to the country's China-like per-capita growth rates of well over 5 percent per year.

Unlike the United States, Vietnam has accomplished broadly distributed growth by such strategies as requiring joint ventures or local content standards that link food-processing industries to local farmers and connect global automotive and motorcycle industries with domestic providers of inputs. The institute's analysis of foreign investment in Vietnam showed that these policies helped Vietnam's rural society diversify into manufacturing and expanded employment and livelihoods.

Similar policies have helped fuel Malaysia's industrial growth. Both Vietnam and Malaysia have prudently regulated cross-border financial flows to make sure investors don't desert their nations with the whims of speculative global capital markets. In the wake of the East Asian financial crisis of the late 1990s, Malaysia put restrictions on transfers of capital out of the country. Though laissez-faire advocates attacked the controls at the time, these policies, according to the U.S. National Bureau of Economic Research, helped Malaysia recover from the crisis better than many other nations in the region. Standard & Poor's found that similar measures in Vietnam helped cushion that country from the 2008 global financial crisis.

Vietnam and Malaysia, in sum, have a managed form of globalization that the TPP would undermine. Both countries have made themselves attractive to U.S. investors and exporters through government policies that have led them into global markets, spread the benefits of integration, and maintained financial stability. Yet the investment and financial-services provisions in the TPP would restrict the ability of these nations to use joint ventures, local content rules, and regulation of cross-border financial flows to spread benefits, stimulate local manufacturing, promote employment, and provide financial stability.

It may be difficult to grasp that the TPP could harm the broader economic interests of both the U.S. and smaller Asian nations. But if balanced development requires a managed form of capitalism, then a trade deal like the TPP, which strengthens investors and weakens governments, can harm Asians and Americans alike. …

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