Ultimately, the purpose of U.S. economic policy is to manipulate trade relations in a way that improves the quality of life for the average American citizen. However, the recently proposed Trans-Pacific Partnership, a trade agreement between the U.S., Japan and 10 other Pacific nations, lacks logistically sound reform and therefore blurs foresight of future exchange rates and of how future trade will affect American citizens. The partnership faces opposition from strong political figures, ranging from the far-left to the far-right. Presidential candidates Hillary Clinton and Donald Trump oppose the partnership because it does not directly address currency manipulation, while Bernie Sanders contributes his concern for the potential loss of American jobs. Despite opposition, however, President Barack Obama and his team of economic analysts state that the partnership will add $223 billion per year to the global economy over the next 10 years and that trade with these countries will support 4 million U.S. jobs. Additionally, trade between the U.S. and the other involved countries has skyrocketed over the past three years, and, with such a major change in trade behavior, an update to trade policy is necessary to meet the United States’ needs as a frontrunner in global trade. Despite its shiny exterior, however, the Trans-Pacific Partnership is compositionally reminiscent of several failed trade agreements of the past, and its current structure will likely lead to a similar unfruitful fate.
In 1925, 1933, 1936 and 1971, the U.S. arranged stabilization agreements to regulate trade in rapidly changing trade economies. Among other things, these agreements did not achieve major success because involved nations set unrealistic expectations, never resolved disagreements, suffered severe imbalances of economic power and even failed to implement policies to promote inflation stabilization. The Plaza Accord of 1985, however, was the first international agreement that seemed to fully correct the economic issue it needed to address. The Plaza Accord directly addressed inflation policy, therefore eliminating currency misalignment and allowing sustainable trade practices between the U.S. and the other four countries involved. The accord’s clearly defined protocol of currency manipulation separated it from the failed trade agreements of the past, as the policy prevented the involved nations from drastically altering money supplies to gain an economic advantage over other nations. As a result, the involved nations engaged in systematic and balanced trade practices. Because the Trans-Pacific Partnership lacks definitive regulation of currency manipulation, involved nations retain their power to alter their own money supplies in any way they see fit. This option creates opportunity for nations to engage in self-benefiting manipulation of their own money supplies, damaging the trade equilibrium and defeating the sustainability-driven purpose of the partnership.
While trade policy is necessary to stabilize volatile trade in the Pacific region, the Trans-Pacific Partnership has several facets that strongly resonate with the failed trade agreements of the past. One major defect is the sheer number of countries involved with the Partnership. If the United States’ goal was merely to stimulate international trade, then the more countries involved, the merrier. However, the U.S. government, whose goal is to increase the quality of life in the home front, should be striving to establish a favorable and stable trade relationship in the world economy, a task that is essentially impossible when so many economically diverse countries are involved. It is extremely difficult to develop an agreement that is beneficial to all involved countries in the long run, and getting a crowd to agree on a single policy is even more difficult. This lack of wholehearted commitment to an agreement leads to failure, as evinced by how disagreement between France and the U.S. undermined their 1933 Sterling depreciation agreement with Britain.
Even more concerning, as Clinton and Trump point out, is that the partnership does not directly address currency manipulation and its resulting changes to exchange rates. Although facilitating the fast-growing trade in the Pacific is essentially guaranteed to help the global economy, what determine the partnership’s effectiveness from the U.S. viewpoint are the exchange rate and the resulting changes in an American consumer’s economic freedom. Because the partnership fails to regulate currency manipulation, it is difficult to predict how the it will affect consumption and ultimately jobs back home.
While a trade agreement between the U.S. and some of its major trade partners can lead to economic growth, a failed agreement can lead to a loss of jobs or devaluation of the dollar, damaging the nation’s economic standing and negatively impacting American citizens. With its nonexistent inflationary guidelines, the Trans-Pacific Partnership counters the U.S. government’s intentions of creating a sustainable trade arrangement that benefits Americans at a household level. While there is a great need for an updated trade policy in the Pacific, the Trans-Pacific Partnership suffers great logistical weakness and essentially has no policy to stabilize exchange rates. At this time, the best solution would be to take a step back, re-draft the partnership, and propose a more realistic and sustainable option in the near future.
Michael Foster is a Rice University sophomore majoring in economics and ecology and evolutionary biology.