Pacific trade deal: good for global supply chain

The Obama administration’s request for fast-track authority to reach a Pacific regional trade agreement is causing a political fracture in the US: businesses support it, while unions, environmentalists and human rights activists oppose it. Concessions to win over the Democrats are now being made, but the stakes of global trade are too high to miss a seat at the negotiating table.

The Trans-Pacific Partnership is good for the global supply chain

Set to comprise 12 countries, the TPP proposes to do for the Pacific what NAFTA did for North America. It is ambitious in scope, including not only reduction of trade barriers on agriculture and manufacturing, but also rules governing environmental standards, labour standards and intellectual property rights. Analysis by The New York Times says that the “clearest winners… would be American agriculture along with technology and pharmaceutical companies… and many large manufacturers that say they could” expand exports in Asia and South America.

Prominently missing from the TPP, of course, is China – the proverbial elephant in the room. China’s massive and still growing role in the world’s economy is one of the main reasons President Obama is willing to go against so many of his traditional Democratic allies with this deal. He worries, justifiably, that China will be the one setting the standards for global trade unless the United States acts.

China is vital to the global supply chain, not only as workshop to the world, but also as a huge customer. Among supply chain executives, however, its importance for growth is matched only by its contribution to risk. Among these risks are worries about intellectual property rights, rising costs and labour retention. But above all else, supply chain practitioners struggle with capricious regulations. We absolutely must do business with China, but everyone feels compelled to watch their own back.

The TPP would surround China with a collection of trading partners committed to stable, uniform rules governing international trade. It should work something like ASEAN, or even a less integrated version of the European Economic Community. It would bring important low-wage countries, such as Vietnam, Mexico and Malaysia, together with technically advanced nations, like Japan and Singapore, and resource-rich economies, like Canada, Chile and Australia. As a counterbalance to China’s surging economic influence, this agreement is a winner.

What about jobs?

TPP opponents’ biggest complaint is that the partnership will cost American jobs, especially the relatively high-paying manufacturing jobs that once sustained the middle class. Although true in some sense, this argument is flawed: these jobs are going away anyhow. The job protection crowd is no-less nostalgically blinded than arch-conservatives fighting the tide of multi-culturalism. Protectionist policies don’t work, as Japan, France, and most recently even Brazil have painfully discovered.

SCM World research on technology automation and jobs points clearly to a future with no real place for unskilled labour. We have seen it in studies of both the retail and manufacturing sectors and have every reason to believe it will continue with the new applications of 3D printing, advanced robotics, internet of things and big data.

The good news is that all research points to a future that includes plenty of work, so long as job applicants bring some skill to the table. This is true not only in the US, but also in Europe, Japan and even emerging economies, all of which have seen static income levels for unskilled workers despite large-and-growing talent gaps.

Global trade grows up

The impetus for the TPP, after all, is not really jobs or even growth, but setting standards for global trade that will work in a post-industrial world. Cheap labour is fast fading as a national competitive advantage, and lax social and environmental regulation offers little basis for long-term growth in a resource-constrained world. China has done great things in the past 30 years, but with too much collateral damage to the people and the planet.

By connecting economies that generate 40% of the world’s GDP, the TPP offers a huge marketplace for new ideas and standards of behaviour in global trade. These could deliver many decades of dynamic economic activity built on intellectual property, sustainable development and social justice.

The new century won’t look like the last. Neither should its rules.