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Remarks by Ambassador Michael Froman at the Cato Institute Forum

Remarks by Ambassador Michael Froman at the Cato Institute Forum

Washington, D.C.
June 30, 2016

*As Delivered*

There are a number of things obviously we don’t fully agree on, but I think here is an area where we might well agree on, the importance of moving this forward. So I welcome this opportunity and thank Dan for the invitation and the opportunity to meet with you.

I’m delighted to see one of my predecessors here, Clayton Yeutter, in the front row.  One of the great things about this job is how bipartisan it is, and I have gotten great guidance and support from all of my predecessors, and I am very grateful to Ambassador Yeutter for being here.

I want to thank the trade team at Cato -- Dan, Simon, Bill, and Dan – for bringing their deep expertise on these issues to the debate. We welcome this report that’s being issued today and look forward to reading it, and the independent analysis that Cato does on this issue.

TPP will be the largest trade policy advance in more than 20 years on a wide range of important policy goals. The results very well mesh with principles common to conservatives, liberals, and libertarians alike.

If you’re interested in reducing taxes, promoting market-based rather than subsidy-based competition, Internet freedom, and entrepreneurialism, there’s a lot to like in this agreement.

For example, TPP will eliminate more than 18,000 taxes, or tariffs, on our exports.  It will increase the standard of living of especially low- and middle-income Americans who spend a higher proportion of their disposable income on consumer goods.  And it will help maintain the competitiveness of U.S. manufacturers who rely on imported inputs or components.

An American company selling cosmetics or cars to Vietnam will find new opportunities as tariffs of 20 and 70 percent vanish; the proprietor of an Asian grocery store across the river in Arlington will save herself and her customers money as U.S. tariffs drop off straw mushrooms and baby corn.

TPP will be the first agreement since the Uruguay Round in 1994 to cut a subsidy, prohibiting fishery subsidies that contribute to overfishing.  This is a historic achievement, both for the removal of a distortive practice and as a conservation measure.

This is the first trade agreement to take on the issues of the digital economy, preserving the integrity of the Internet and the right to move data freely across borders, and prohibiting efforts to require the localization of infrastructure and other forms of digital protectionism.

TPP will, for the first time, take a comprehensive approach to imposing disciplines on state-owned enterprises to make sure that when they compete against our private firms, they do so on a fair and level playing field.

TPP will support small businesses through its trade facilitation measures, its efforts to harmonize customs procedures and to make countries’ regulatory processes more transparent. 

These are just a few of TPP’s highlights.  There have been a number of studies done on the benefits of TPP, from the Peterson Institute to the International Trade Commission to the American Farm Bureau.  They all found that TPP will support more well-paying, export-related jobs, add consumer purchasing power and spur economic growth here at home.  Both the Peterson Institute and the ITC, which conducted the two major modeling studies of the agreement, both find that the majority of the benefits of TPP will go to workers through higher wages.

Now, there is a great deal of anxiety among the American people, evident in the current election dynamic, not to mention across much of the developed world, and Dan referred to that in his introduction.  There is concern that other countries don’t follow the same rules we do, but instead act unfairly; that the benefits of growth have not been broadly shared; that the system is rigged in favor of the few.

It is important that we not ignore these concerns.  They are real and legitimate.  The question is what to do about them.

Most economists will tell you that technology has more to do with the changing nature of the workforce than globalization, but they both contribute.

The problem is that we don’t get to vote on technology.  Nobody votes on the next generation of computers or on whether robots will be deployed in the workplace.

Nor do we really get to vote on globalization.  Globalization is a fact made possible by the containerization of shipping, the spread of broadband, and the opening of countries like China and Eastern Europe that used to be closed to the global economy and are now part of it.  Globalization is a force; you can’t just wish it away or put the genie back in the bottle. 

What we do get to vote on are trade agreements.  So they become a magnet of concern, a scapegoat for a broader set of factors that contribute to economic anxiety.

But it’s important not to conflate trade agreements with globalization.  Globalization has impacted the workplace; trade agreements can be part of the solution.  Trade agreements allow us to shape globalization to our advantage.  They are the vehicle through which we help write the rules of the road for the global trading system, and do so in a way that reflects our interests and our values.

Just yesterday, the International Trade Commission released a study on the effects of U.S. trade agreements since 1984, when we negotiated our first FTA, with Israel.  In aggregate, our bilateral and regional agreements have added American jobs and increased wages; given consumers lower prices and greater product variety, with the largest purchasing power gains going to low- and middle-income Americans, and increased returns on innovation. 

We start from the fact that the U.S. already has one of the world’s most open economies in the world, in large part because of decisions made decades ago - and supported by 12 Presidents, six Democrats and six Republicans.  Our average applied tariff is less than 1.5 percent, 50 percent of all U.S. imports come in duty-free, and we don’t use regulations as a disguised barrier to trade.

But when we look abroad, we see markets that are shielded by higher tariffs and opaque and slanted regulatory systems.  With the Trans-Pacific Partnership, we can level the playing field by removing barriers to those markets, raise standards in those markets, and as a result, increase our export-related jobs, which pay up to 18% more on average than non-export related jobs.

Right now, we compete with low-wage countries all over the world.  TPP will open some of the largest and fastest growing markets to Made-in-America manufactured goods, agricultural products and services.  And by raising standards in other countries, TPP will help level the playing field for American businesses, workers, farmers and ranchers.

But there is something broader at issue in whether and when TPP moves forward:  and that’s the rules-based system itself.

That system helped Japan and Europe rebuild after the Second World War. It has allowed developing countries, such as South Korea and Brazil, to become emerging markets. It helped lift hundreds of millions of people out of poverty. And here at home, successive rounds of trade liberalization is estimated to have added $13,000 in purchasing power per American household.

But we cannot and should not take that system for granted, because that system is under attack as more statist and mercantilist alternatives are being promoted abroad while there are calls for isolationism and protectionism here at home.

From our perspective, it’s vitally important that we maintain and strengthen the rules-based system, where every country has certain rights, where all countries are expected to play by the same rules and, if they don’t, where there is fair and equitable resolution of disputes, where big countries can’t just push little ones around.

That system is key to maintaining a stable and prosperous Asia-Pacific region.  It is also key to ensuring that the global economy works for all Americans. It’s critically important that we’re not just sitting on the sidelines, but proactively shaping the global economy in a way that reflects those interests.

If the United States were to turn inward, the results would be economically devastating.  History has proven beyond a doubt that protectionism doesn’t work.

Raising tariffs on our trading partners would only lead those countries to respond in kind and block our exports.  That is a trade war, and we know that no one wins in a trade war.  Turning to protectionism would not increase employment here; it would reduce it.  It would not boost economic growth; it would retard it at best and drive the economy into recession at worst.

We know this from experience.  In 1930, Congress passed and President Hoover signed the Smoot-Hawley Tariff Act, which essentially walled off the United States from imports.  Hoover’s view was that this was essential for an era in which, he believed, Americans could not compete against low-wage countries – in Europe.  The thinking was that raising tariffs would lead to a resurgence of agriculture and manufacturing employment in the United States. 

But in fact, the opposite happened; we wound up with many fewer jobs, we may have had a sizeable trade surplus, but we also had the Great Depression.  Not only did the high tariffs worsen the Great Depression, but they contributed to the decline of the global economy, which led in turn to the rise of nationalism in Europe and Asia.

As President Reagan once said, protectionism “will not open markets to U.S. products [but] will close them.”   He said it would “mandate that the United States, violate many of the most basic rules of international trade, and expose our most productive farms and industries to retaliation by other nations.”

The economic stakes of isolationism are clear, and so are the strategic stakes.  Rejecting TPP would undermine U.S. leadership, not only in the Asia Pacific region, but around the world.

Our allies couldn’t help but question whether we had the will to make good on our commitments.  As Singapore Prime Minister Lee put it, “if you are not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”

In fact, now more than ever, it’s important we move ahead with the approval of TPP.  Earlier this week, I was reading a piece on the opinion pages of the Wall Street Journal, and the author was describing his sentiment after participating in a discussion of the impact of Brexit on Europe.  He said, “The fate of the entire postwar order hangs in the balance, and with it the prospects for democracy world-wide.  Without vigorous American leadership, the prospects are not bright.”

Between the migrant crisis and internal challenges, there is a serious risk that Europe will be preoccupied, at least for some time.  We cannot afford a self-inflicted wound to American leadership at the same time.

The good news is that, as I meet with Members of Congress, they are increasingly appreciating the benefits of the agreement and the costs of delay.

The costs of delay are high.  We’re already seeing our market share in priority products eroded by other countries who already have free trade agreements in place. The Peterson Institute estimated that a one-year delay in putting TPP into effect would impose a $94 billion cost on the U.S. economy.  That equates to about a $700 tax on every American household.

Moreover, if we don’t get it done soon, the other Asia-Pacific countries aren’t just going to sit around and wait for us, they’ll move on.  As New Zealand’s Prime Minister Key put it, “These economies aren’t going to stand still . . . Beijing will step in to fill the void.

The choice isn’t between TPP and the status quo; it’s between TPP and what is likely to evolve in the absence of TPP.  As other countries move forward with their own preferential market access agreements, our businesses stand to see their market share in these key countries shrink rather than expand.  And, instead of seeing our rules put in place, we’ll face adverse implications for the free flow of data and the integrity of the Internet; for disciplining subsidies and state-owned enterprises; and for cooperating against counterfeit medicines and consumer goods.

Today our country has a choice.

We can play a leadership role in writing the rules of the road for 40 percent of the global economy or we can leave that job to others, whose values and interests don’t necessarily align with ours.

Our failure to move forward would weaken us economically and would undermine American leadership. 

Cato’s report is an important contribution to this debate, providing further evidence of how valuable TPP will be to the businesses, workers, farmers and ranchers in the United States, and to America’s leadership in the world’s fastest growing region.

We are grateful to Cato for their support of this agreement, for moving forward with its ratification.

Thanks very much for having me, and I’m happy to take questions for as long as I can.

Thank you.