U.S.-Vietnam TPP Discussions to Progress, but Congressional Support Remains Uncertain

By Esther Sainsbury —

President Barack Obama boards Air Force One with a storm on the horizon. Source: Wikimedia, U.S. Government Work.

President Barack Obama boards Air Force One with storm clouds on the horizon. Source: Wikimedia, U.S. Government Work.

President Barack Obama will arrive in Vietnam on May 23 to highlight his ongoing commitment to the U.S. rebalance to the Asia-Pacific and the importance of ratifying the Trans‑Pacific Partnership (TPP) free trade agreement this year. Although Obama’s commitment to the 12-nation TPP and the strategic case for the trade deal is clear, the president’s economic diplomacy in Hanoi will likely be made harder by increasing U.S. domestic opposition to its provisions.

The TPP is the primary U.S. economic engagement strategy in Asia and many in Washington consider its ratification a national security imperative, but three key domestic issues diminish the likelihood of the United States ratifying the TPP in 2016: U.S. public skepticism about the economic benefits of the TPP; the lack of support for the TPP among U.S. presidential candidates; and the seemingly low likelihood of Congress passing a trade bill this year.

Whether the United States ratifies the TPP in 2016 remains a crucial question for Vietnam and the other 10 signatories. No doubt Obama will discuss the issue with President Tran Dai Quang in Hanoi. Vietnam stands to reap significant economic and strategic gains from the TPP – potentially more than any other signatory. The Peterson Institute for International Economics has estimated that reduced tariffs and improved market access would boost Vietnam’s exports 20 percent and its gross domestic product by as much as an 8.1 percent. U.S‑Vietnam economic ties would be strengthened, as would the U.S.-Vietnam comprehensive partnership. Improved economic interdependence with the United States and other large export markets such as Japan and Canada would also reduce Vietnam’s economic dependence on China.

The TPP enjoys high levels of public support in Vietnam, but Americans remain skeptical. The potential positive impacts of the TPP on the U.S. economy – its ability to serve U.S. economic and security interests and offer important emerging market opportunities – has not translated into popular support. Although 2015 Pew polling suggests that the majority of Americans believe free trade is good for the country, it also shows that 46 percent believe free trade agreements lead to job losses in the U.S. and just 17 percent believe they create jobs. Americans are increasingly less likely to think trade deals have a positive impact on their personal finances and most feel economically insecure. Pessimistic about the current U.S. economic outlook, most Americans want the United States “to deal with its own problems” first, wary of U.S. international involvement.

Whether or not the TPP will put American workers first and help middle-class families get ahead has become a central issue in the 2016 U.S. presidential campaign. Presidential candidates Bernie Sanders and Donald Trump maintain opposition to the TPP as a central part of their campaigns. Sanders has suggested the TPP is a “disastrous trade agreement designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy”. Trump has called the TPP a “job-killer,” arguing that, “since there is a small market for U.S. goods in Vietnam, this will be an almost entirely one-sided arrangement as thousands of U.S. workers are laid off and production [is] shipped to Vietnam instead.”

Presidential candidate Hillary Clinton strongly supported the TPP while she was secretary of state, but withdrew support after negotiations were finalized stating the deal did not go far enough to create jobs, raise wages, and advance national security. Clinton does still support the overall policy objectives of the TPP and in her second memoir Hard Choices in 2014 wrote that the TPP had the potential to be one of the United States’ “most important tools for engaging Vietnam.”

If Trump or Sanders were to be elected the TPP would likely disappear from the legislative agenda. Under a Clinton administration the trade deal could be resurrected. If Congress does not pass the bill in November, Clinton could distance herself politically from the agreement, take two to three years to try to renegotiate specific provisions of concern and return with a “new” agreement more palatable to the U.S. public. The challenge of revisiting the TPP is that it has 11 partners, which means that opening up any elements of the deal for renegotiation would be immensely difficult. At least one country has already ratified the agreement and others are already debating it in their legislatures.

Unfortunately for Obama, the release on May 18 of the highly-anticipated U.S. International Trade Commission’s (ITC) report on the economic effect of the TPP does not reveal the TPP to be an engine for job growth. By year 15 of the trade deal it would have increased employment by just 0.07 percent (128,000 full-time equivalents) relative to baseline projections.

It does, however, estimate that the TPP “would have positive effects, albeit small as a percentage of the overall size of the U.S. economy.” This includes an annual U.S. real income growth of $57.3 billion (0.23 percent) and real GDP growth of $42.7 billion (0.15 percent) higher than baseline projections. According to ITC estimates, U.S. exports to TPP partners would grow faster than U.S. exports to the rest of the world. U.S. imports from TPP partners would grow faster than overall imports, but not as fast as exports to TPP partners.

Using the ITC report findings and his fast-track trade promotion authority Obama will push Congress to consider the bill in the November 2016 “lame-duck” session, but support for the bill remains far from certain. Political and public pressure on lawmakers to reject the bill ensures Obama faces an uphill battle to gather the support he needs for the bill to pass.

A delay of several years in U.S. TPP ratification would disappoint TPP supporters and dent U.S. credibility in the Asia Pacific, but would be far better than a longer-term delay or TPP failure. Should the TPP fail, the United States would lose a critical opportunity to advance its economic and security interests.

Not building economic interdependence with TPP signatories would cost the United States improved access to almost 40 percent of the global economy. U.S. allies would question the country’s commitment to the future of the Asia Pacific. World leaders advocating closer ties with the United States, such as President Quang of Vietnam, would lose credibility and political capital. The opportunity for the United States to set a global benchmark in international trade that favors U.S. interests would be lost. China would be afforded more time to advance alternative, less robust economic architectures that blunt U.S. leadership and exclude the United States, such the Regional Comprehensive Economic Partnership (RCEP) which recently held its twelfth round of negotiations in Australia.

Whether Congress has the political will to support Obama to ratify the TPP and secure United States economic and strategic interests in the Asia Pacific remains to be seen. Obama’s discussions on the TPP in Hanoi and continued international economic diplomacy in support of the trade deal are important. His defense and advocacy for the trade deal in Washington, however, have become far more critical.

Ms. Esther Sainsbury is an Australian foreign service officer, former Thawley Fellow, and current visiting fellow with the Southeast Asia Program at CSIS. The views expressed here are solely those of the author and do not reflect the views of the Australian government.


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