Trans-Pacific Partnership: Do it for Vietnam

Posted by: | Posted on: August 5, 2015

Trans-Pacific Partnership: Do it for Vietnam

John Kerry Attends a Reception in Honor of the 20th Anniversary of U.S.–Vietnam Trade Relations Image Credit: Flickr/ U.S. Department of State

John Kerry Attends a Reception in Honor of the 20th Anniversary of U.S.–Vietnam Trade Relations
Image Credit: Flickr/ U.S. Department of State

Tyler Cowen, the prolific economist behind Marginal Revoution (a blog I’ve read for over half-a-decade and recommend), has a unique case in favor of the Trans-Pacific Partnership that relies on simple utilitarian logic. Simply put, the benefits of the TPP coming into effect outweigh the costs in a huge way. Particularly, the benefits for one country—Vietnam—are huge. In fact, Cowen makes that case that the benefit to Vietnam would be so huge that any costs borne by U.S. interest groups and constituencies are marginal. The benefits to Vietnam alone should make the TPP a “no brainer” of an agreement.

The economic reason is simple. The TPP, while it is many things, is at its core a tariff-effacing trade agreement for among its 12 signatories. Vietnam, meanwhile, is not only a poor country, but a country that remains at odds with the values and principles guiding the primary stakeholder behind the TPP: the United States. Vietnam, a Communist country, has undertaken some liberalization on tariffs, “but since then has done some backsliding,” writes Cowen. Specifically, after its entry into the World Trade Organization (WTO), Vietnamese tariffs “on products of interest” to the United States drastically, only to slightly increase them to come in line with the maximum of the range allowed under WTO bindings (see the U.S. Trade Representative’s report on Vietnam here).

Given that Vietnam does a lot of trade with the United States and that the TPP will slash major trade protections on the Vietnamese market, it follows that Vietnamese goods will be particularly competitive in a post-TPP context. In support of these claims, Cowen cites a simulation study by the Peterson Institute on International Economics that demonstrates the same (i.e., that Vietnam, of all countries party to the TPP, stands to benefit the most). A particularly telling statistic for the potential gains for Vietnam in a zero-tariff scenario is the following: in 2012, 34 percent of U.S. apparel imports came from Vietnam, amounting to $7 billion. In a zero-tariff scenario, these imports are suddenly far more competitive.

Given the projections, Cowen notes that despite the “[intellectual property] and tech criticisms of TPP,” the TPP is a “no brainer” given the “potential benefit for the ninety million people of Vietnam.”

Of course, the logic underlying Cowen’s argument also holds in a hypothetical scenario where the United States and Vietnam conclude a bilateral free trade agreement, but since that’s nowhere on the policy radar for either government, the TPP seems like the best feasible way to attain the benefits for Vietnam.

Unsaid in Cowen’s analysis is that the TPP would likely facilitate the ongoing strategic rapprochement between the United States and Vietnam. For example, late last year, the United States lifted its long-standing arms embargo on Vietnam, leading to expectations of closer ties between the two former enemies.

Finally, if one of the United States’ grand strategic goals is to uphold the liberal economic order it created after the Second World War, helping more countries adopt liberal economic standards should be a priority. Vietnam’s state-owned enterprises would have to undertake greater transparency standards under the TPP. Cowen notes—and this is probably the least convincing area of his reasoning—that the TPP would inspire broader freedom for Vietnam’s residents, including “free(r) labor unions.”

Cowen, in an aside, throws out a call to any American ‘deontologists’ among his readership to support the TPP on the grounds that the United States has been “especially unjust to” Vietnam in the past. With the 40th anniversary of the Fall of Saigon—the event marking the end of the U.S.-Vietnam War—later this week, the point is particularly salient.

I should note that none of this will probably matter in the broader domestic U.S. debate on the merits of the TPP. While there is an American national interest case to be made for enhancing the economic welfare of Vietnam and ensuring that the country has a stake in a formal liberal economic order, it is not one that will resonate with the primary U.S. critics of the TPP who continue to be primarily concerned about the agreement’s distortionary effects on U.S. workers and its perceived tilt toward the interests of large corporations.


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