Tax & Accounting Blog

How Free Trade Comes with a Price in American Politics

Blog, Checkpoint, Global Trade, ONESOURCE March 18, 2016

Trade has become the third rail in the current U.S. primary election season with both sides of the aisle clamoring to save American jobs while still supporting free trade.  I have provided statements from each of the five candidates.  Can you match up the statement to each candidate?  Even more difficult to predict is what it means for the future of the Trans-Pacific Partnership (TPP) when one of these candidates becomes the next President of the United States.

“I hoped [TPP] could deal with currency manipulation and a lot of the other problems that people have faced… It didn’t meet my standards.” [1]

“TPP is the biggest betrayal in a long line of betrayals where politicians have sold out U.S. workers.”[2]

“I’ll tell you, I am very, very skeptical about TPP. This thing is 6,000 pages, it is negotiated by a President who has undercut American workers at every level, and I think it is a mistake to be undercutting the working men and women of this country.”[3]

“Our job is to kill this disastrous trade deal.  We have to kill TPP and start all over, creating trade agreements that work for the workers of this country.”[4]

“I think we should be for free trade, but I think fair trade.”[5]

It is striking that each of the candidates has expressed opposition to TPP, tapping into the populist movement that seems to fuel the rise of Trump and Sanders in their respective parties.  Opposition to TPP may be the one area where the leading candidates agree!  However, most do not agree on what the implications will be for TPP.  Will the staunch opposition to TPP halt the current administration’s ability to garner support needed to pass the multilateral agreement?  Will Congress vote on TPP during the lame duck session, after the November 2016 election and before January 2017 when the new President is inaugurated?

The governments of the eleven other countries that are parties to the deal are also watching closely, concerned that any attempt by the United States to renegotiate the deal will destroy it.  Hiroshi Oe, Japan’s deputy chief negotiator for TPP, told an Asia Society forum in Washington that “TPP to me is something like a delicate, fragile glasswork, so if we want to cut one part of it, that will destroy everything,” adding that there is “no possibility [of] renegotiation of the substance.”[6]  However, there is no doubt that renegotiation is precisely what the frontrunners in this election want to do.  For example, both Trump and Clinton seek to introduce provisions that address currency manipulations as a tool to protect American exports.[7]

The United States is crucial to TPP, not only for the obvious reason that it is the largest economy in the agreement, but also because of the conditions that need to exist for TPP to come into force.  The main provision being that either all TPP members must ratify the agreement, or, if not, at least six original signatories must ratify the agreement, and those six countries must represent 85% of the total GDP of the 12 original signatories.  From a practical perspective, the United States (and Japan) must enact TPP, or it cannot come into force.

TPP is an opportunity for importers and exporters to improve their bottom lines by taking advantage of preferential duty-rates offered under the agreement when imported goods meet the origin rules.  Yet, for now, importers may hesitate to invest resources that examine how TPP could save them money because the trade pact’s viability is in question.  Sourcing decisions are usually made well in advance of production, but if importers fear relying on TPP to influence those decisions now, they may need to play catch-up later, losing out on benefits from an earlier start.  Importers may also hesitate to use current free trade agreements, pending the outcome of TPP.  An importer could decide not to implement procedures to use NAFTA, for example, if they know they will really want to use TPP, if and when it is passed.  Importers are on the sidelines waiting, watching the candidates and trying to predict the future of TPP before making any decisions.

Based on the current rhetoric on both the Republican and Democratic sides throughout this election season, it appears the next U.S. President has already cost U.S. importers and exporters money by placing TPP in jeopardy.   No wonder the world is watching U.S. politics.  No wonder it is so difficult for importers and exporters to know how to prepare.  Free trade comes with a price in American politics.

To learn more about TPP, visit our Trans-Pacific Partnership Agreement page.


[1] March 14, 2016, Hillary Clinton MSNBC Town Hall with Chris Matthews

[2] March 14, 2016, USA Today, Donald J. Trump, “Donald Trump: Disappearing Middle Class Needs Better Deal on Trade”

[3]November 12, 2015, The Laura Ingraham Show, “Fiorina & Cruz: No TPP in Lame Duck,”

[4] March 13, 2016, The Washington Times, “Bernie Sanders Rallies Ohio College Students, Hits Hillary Clinton on Trade Agreements”

[5] January 14, 2016, John Kasich during Republican Presidential Debate in North Charleston, S.C.

[6] March 9, 2016,  Reuters News, “Pacific trade deal cannot be renegotiated, Japanese official”

[7] April 23, 2015, CNN Money, Alanna Petroff, “Donald Trump slams Pacific free trade deal”; October 14, 2015, Reuters News, “Clinton says Pacific trade deal falls short on addressing currency manipulation”;

Tags: , ,