Fables and Facts: Trade Promotion Authority

by Clark Packard / /

Opponents of Trade Promotion Authority (TPA), and trade in general, are using spurious or misinformed arguments in their attempt to dismiss a much-needed tool for expanding market access and economic freedom. Benefits for American families and businesses are on the line.

The following is a refutation of the more frequent criticisms.


Fable #1: TPA would lead to a rash of illegal immigration

Fact: Certain opponents of TPA argue that the bill or trade agreements negotiated pursuant to TPA will be used as a method to encourage illegal immigration. This is patently false.

Few people have fought harder against President Obama’s changes to immigration policies via unilateral executive authority than House Judiciary Committee Chairman Bob Goodlatte of Virginia.

In November 2014, Chairman Goodlatte wrote the following in an editorial in the Wall Street Journal about the Administration’s actions: “The president’s vow to override U.S. immigration laws by executive fiat is not without cost. By acting lawlessly and assuming legislative power, the president is driving full speed toward a constitutional crisis, threatening to unravel the nation’s system of checks and balances.”

After reviewing TPA and TPP, Chairman Goodlatte circulated a Dear Colleague on immigration concerns in the proposals, in which he stated, “There is nothing in the current draft of the TPP that will in any way advance or facilitate [the Obama Administration’s immigration policies] or any other unconstitutional action by the Administration.”

Some have based their illegal immigration concerns on a misunderstanding stemming from a free trade agreement with South Korea. As part of a separate letter after the agreement with South Korea was reached, the L-1 visa period for Korean nationals was extended from three years to five years. L-1 visas are temporary visas that foreign companies use to send executives or managers to the United States to help launch U.S.-based operations. In other words, L-1 visas were extended, but the individuals arriving in the United States as a result are neither illegal immigrants, nor permanent residents.


Fable #2: TPA needs strict currency manipulation restrictions because foreign countries devalue their currencies to tilt the playing field in favor of their own companies.

Fact: There are three very good reasons why Congress should avoid inserting strict currency manipulation language into TPA.

First, the United States Trade Representative (USTR) is currently negotiating the TPP with 12 Pacific Rim countries. TPP will likely be the first trade agreement finalized assuming Congress passes TPA. Of the 12 countries negotiating TPP, only Japan could conceivably classified as a currency manipulator.

While it is true the Bank of Japan, the country’s Central Bank, has set a loose money policy in recent years, such actions are similar to actions the Federal Reserve has taken since the financial crisis of 2007-2008.

Some argue that China is the world’s leading currency manipulator, but that country is not a party to either the TPP or the Trans-Atlantic Trade and Investment Partnership (TTIP).

Further, as a paper released by Richmond Federal Reserve Bank in 2013 noted, the value of the renminbi “has appreciated by a third” between 2005 and 2013. And as Derek Scissors of the American Enterprise Institute wrote earlier this month, “When China intentionally weakened its currency in 1994 – currency manipulation – the US job markets improved for five straight years. When China strengthened its currency starting in 2005 – what the critics want – our job market first didn’t chance, then got much worse. The reason is obvious: China doesn’t matter to our job market. It’s so unimportant that the last two times China changed currency policy, the jobs result was the opposite of what currency critics expected.”

Currency manipulation language is unnecessary in the TPA bill and in fact, would act as a hindrance to these careful negotiations. Although NTU has not taken a position on TPP’s details, others have forcefully made the case that if indeed a U.S. policy goal is to prevent China from exerting undue influence in world trade, TPP might actually facilitate that goal. As the Washington Examiner forcefully wrote recently, “Either TPP passes and American producers and exporters get a say in the rules of the game within these Pacific markets, or else China goes on to dominate them instead.”

Second, currency manipulation is not a panacea in global commerce. If a country devalues its currency to encourage exports, it raises the price of items it imports from foreign countries. At the same time, forcing countries to raise the value of their currency could raise the prices of imported goods that families and businesses in the United States rely on. The economic impact of changes in currency value is a highly complex matter – currency manipulation does not provide a simple, clear-cut path to prosperity.

Finally, President Obama has indicated that he would veto a TPA bill containing currency manipulation restrictions. Even assuming TPA became law over the President’s veto, our trading partners are highly unlikely to agree to such strictures. The reason is simple: a country’s monetary policy affects its exchange rates and the value of its currency. Inclusion of currency manipulation restrictions in TPA would possibly subject the United States and our trading partners to foreign challenges to their own domestic monetary policy.


Fable #3: TPA cedes Congressional power to President Obama who has not earned the trust of the American people.

Fact: Simply put, TPA maintains an appropriate balance between Congress and the President.

A too-common refrain from certain conservatives is that TPA would empower President Obama with additional authority which he has not earned, given his unilateral actions on everything from immigration to drug enforcement. Unlike some actions taken by the Obama administration, TPA would be a Congressionally approved mechanism the President could use only to pursue defined objectives.

Under TPA, once USTR and its foreign counterparts reach the best deal they can, the President notifies Congress of his or her intent to enter into the agreement 90 days in advance. Sixty days before the prospective agreement is voted on by Congress, the text is made public. This would provide the public and members of Congress plenty of time to carefully consider the specific details of the agreement. Once this period ends, Congress could begin debating the merits of a trade agreement submitted by the President, and would retain ultimate authority to approve or reject trade agreements.

Absent TPA and its Congressionally defined objectives, President Obama’s Administration is free to negotiate any provisions it wishes with foreign trading partners.

In addition, TPA contains a provision that allows Congress to withdraw the “fast track” process for trade agreements under two circumstances: If Congress believes the president did not sufficiently notify or consult them on the agreement or if the agreement fails to live up to the defined objectives. This additional mechanism to withdraw TPA fast tracking further solidifies Congressional authority in setting trade policy. Even if skeptics do not trust President Obama, TPA would be law for six years. This means TPA, if approved, would be a valuable tool for the next president to use to complete foreign trade agreements.

Since the 1970s, TPA has been a bipartisan success. Using TPA authority, President Reagan successfully negotiated trade agreements with Israel and Canada. Likewise, Presidents George H.W. Bush and Bill Clinton negotiated NAFTA using TPA. Most recently, President George W. Bush negotiated an array of trade agreements with TPA, which unfortunately lapsed in 2007.


Fable #4: TPA and trade agreements threaten U.S. sovereignty by allowing trade agreements to trump U.S. law

Fact: This is false. The text of TPA plainly states, “No provision of any trade agreement entered into … nor the application of such provision to any person or circumstance, that is inconsistent with any law of the United States, any State of the United States, or any locality of the United States shall have effect.” This language makes it clear that federal or state law will not be superseded by trade agreements entered into pursuant to TPA.

Likewise, as the non-partisan Congressional Research Service noted in a lengthy paper released in April, “[TPA] essentially provides that, for domestic purposes, any trade agreement adopted under the TPA authority is not self-executing. Therefore, any potential agreement adopted through the TPA procedures would not displace any federal, state, or local law without further action taken by the appropriate legislature.”


Fable #5: TPA and trade agreements amount to giveaways to politically connected corporations.

Fact: While it is true that some politically connected corporations bend public policy to their advantage – a practice economists call “rent seeking” – trade agreements should make this more difficult by lowering government imposed distortions and barriers in the market.

When commerce flows more freely between countries, a government cannot as easily pick winners and losers in the marketplace. If anyone benefits from a status quo of high tariffs and other trade barriers, it is major corporations who are sometimes unfairly shielded from competition by government. Conversely, reducing government’s role in international markets through freer trade will force corporations to compete with one another, which will increase quality and lower costs to consumers.

Some allege that an obscure provision in the TPP dealing with the arbitration process to resolve conflicts arising out of trade agreements (Investor-State Dispute Settlement, or ISDS) poses a threat to American taxpayers and favors large multinational corporations.

It should be noted that TPA does not establish ISDS; however, it does suggest that trade agreements entered into pursuant to TPA should contain an arbitration procedure to expeditiously resolve disputes and deter frivolous claims. It is worth noting that ISDS provisions are nothing new for international trade agreements. As the Chamber of Commerce noted, 22 cases have been brought against the United States under ISDS procedures and the U.S. has never lost a case.


Fable #6: Foreign trade has been a disaster for the United States’ economy and has led to massive job losses.

Fact: Quite the opposite has happened. Increased trade with foreign nations has been an enormous boon to the United States’ economy. It is estimated that 1 in 5 American jobs depends on foreign trade.

As the Business Roundtable notes, 95 percent of the world’s population and 80 percent of the world’s purchasing power are located outside of the United States. As a result, future American prosperity will depend on engaging the rest of the world and improving the free flow of goods and services.

With increased foreign trade and lower tariffs, American businesses will have access to more markets in which to sell their goods and services. Likewise, imports to the United States will lower costs of goods and services, which will benefit businesses and individuals alike within our own borders.

There will always be protectionists who wish the United States could disengage from the global economy. History has proven this to be a disastrous course. In 1930, President Hoover signed the Smoot-Hawley tariff, named after its Congressional co-sponsors. The bill imposed tariffs on over 20,000 imported goods, which triggered retaliatory tariffs on American goods abroad. This certainly exacerbated a deep recession contributing to what we now call the Great Depression.

Congress should heed this lesson from history. Over the long run, foreign trade increases productivity, expands market access for American businesses and consumers, and enhances job creation.