President Obama has built his closing case for the Trans-Pacific Partnership on a political argument, saying "…we can't let countries like China write the rules of the global economy. We should write those rules." But it is both arrogant and wrong to think that the United States has the power to shape the rules governing China's relationship to TPP signatories. As of today, China has already established deeper trade ties than the United States with the TPP nations. Further, congressional approval of the TPP would actually lock in those advantages for China. China has a large trade surplus with the TPP countries, and crucial terms of the agreement (specifically weak rules of origin (ROO) requirements, which we'll talk about in detail below) would provide a back-door guarantee for China and other non-TPP members to duty-free access to U.S. and other TPP markets. This would be especially significant for autos and auto parts, as well as other key products. TPP exporters are not going to turn away from their suppliers in China just because they signed a trade deal with the United States.
The United States has a massive trade deficit with China that has taken on added significance in the light of the proposed TPP agreement between the United States and 11 other Pacific Rim countries. While China is not party to the TPP, it is a major force behind a larger East Asian co-production system that uses unfair trade (dumping, subsidies, excess capacity, export restrictions, and more), coupled with currency manipulation and misalignment, to make U.S. goods more costly and thus less competitive in China, the TPP and in other markets.
The United States also had a large trade deficit with the TPP countries in 2015 that cost 2 million U.S. jobs. Flawed trade and investment deals, such as the North American Free Trade Agreement (NAFTA), plus the currency manipulation and unfair trade by some TPP members account for many of those lost jobs (note that Mexico and Canada are TPP countries). In addition, analysis developed here demonstrates that a substantial share of these TPP job losses can be directly linked to trade between China and the other members of the TPP. Specifically, most of the TPP countries run large trade deficits with China while running large, offsetting trade surpluses with the United States. Thus, it appears that at least some TPP producers are buying parts and components from China and re-exporting them in the form of finished goods to the United States.
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