Niall Ferguson rips into TPP but Trade Minister Todd McClay fights his corner

Pity the Trans-Pacific Partnership agreement. The final version of the trade deal – 10 years in the making – has been criticised by everyone from Fonterra (“disappointing”) to US presidential candidates Donald Trump (“horrible”) and Hillary Clinton (“anti-democratic).

Many opponents on the right – especially in the US – have merely echoed concerns from the left over jobs and sovereignty. TPP optimists can dismiss it as passing populism that will fade after the campaign is wrapped up.

But economic historian and high-profile right-wing commentator Professor Niall Ferguson took a fresh line criticising the TPP during his exclusive interview with NBR Radio, released Sunday (listen here from 13:17).

In fact, he took several, labelling the trade deal a misguided attempt to contain China, too complicated to be viable and an incorrect focus on regional over global deals. To top it off, he thinks it's already dead.

So-called Conservatives like Donald Trump and Ted Cruz are clearly playing to the cheap seats, and betray their ignorance (or wilful ignorance) of basic economics with their anti-globalisation rhetoric that includes calls to ban entry to the US by religion or ethnicity, and to somehow making America great again by forcing companies like Apple to move their most low-margin, low-skilled operations from China to the US. But Professor Ferguson's arguments are not so easily ignored.

In a separate NBR Radio interview, each of Prof Ferguson’s concerns about the TPP was put to Trade Minister Todd McClay.

Here’s a mashup of the Oxford and Harvard academic's four key issues with the TPP and the minister’s responses.

(Bear in mind as you read this that the TPP must be ratified by countries representing 85% of the GDP of original signatories to come into force. That means no US ratification, no TPP. Japan is the only other country that could de-rail the entire TPP single-handed).

1. A heavy-handed bid to exclude China?

FERGUSON: “I’m ambivalent, to be honest, about the TPP. I see in its geo-political motive – the exclusion of China – a rather heavy-handed effort by the US to achieve quasi-containment of China in Asia-Pacific.”

McCLAY: “I don’t agree with that at all. We looked at how other countries could join once the TPP is in force. We’ve already had five or six countries express interest. China hasn’t said that it wants to join. But when I was there with John Key a month or so ago, they were very interested in the TPP and what it might offer and we’ve said we’d be very open with them. If China or any other country wanted to join the TPP, it would be good for New Zealand and we’d be open to a respectful conversation as good partners and trading friends. This isn’t about locking anyone out.”

2. Too complex to be viable?

FERGUSON: "When I look at the incredible complexity of the [TPP]: I think, “Can this really be viable? Can something this complex really be preferable to continuing at the level of the World Trade Organisation to remove non-tariff barriers?

McCLAY: “When you look at the what comes out of the WTO [World Trade Organisation], there is a lot of detail there as well. I suppose the reason trade agreements, as they’re negotiated, become larger, more detailed and much more legal as they go is because it’s about openness and fairness. New Zealand through TPP has made a number of commitments to open up our markets in a number of ways including reducing tariffs across the board. That’s a good thing. We’re an open economy that welcomes investment and we like trade. We just want to make sure, looking at the agreement, in offering up these conditions that others are able to and willing to honour commitments they’ve made to us – after all, it’s the negotiation we’ve reached. So there is complexity in it but I think it’s a very good deal for New Zealand. The legislation going through Parliament, while quite technical, is no more laboursome in a way than most of the legislation we put there. "

(I'd argue that the complexity of the 6000+ page TPP does have practical problems. It's taking so long to be "legalled" by the Obama administration that it is not expected to be put on the floor of Congress for a ratification vote until at least December, and it might not be until after Obama leaves office in January. Also, Hillary Clinton has been the most measured in her criticism of the trade deal, stressing that although she strongly opposes it, it is only certain clauses she has issues with. But the complexity of the TPP means a straight yes/no vote is required from Congress and other lawmakers around the world. Trying to rip out individual clauses will likely have a domino effect – especially when different countries get into tit-for-tat – which could mean years of re-negotiation.)

3. Global better than regional?

FERGUSON: "Can [the TPP] really be preferable to continuing at the level of the World Trade Organisation to remove non-tariff barriers? I'm probably biased in favour of global vs regional trade deals." 

McCLAY: “Mmm. That's a very academic view, although to a degree it’s one I share. Look, it’s not a choice of one or the other. We’ve done bilateral deals, we’ve done regional deals, we’ve done multilateral deals. I’m a firm believer in the importance of the WTO; it’s only through the WTO that we're going to one day see domestic subsidy support for agriculture one day eliminated.

"But the WTO is all of the countries of the world who have joined and historically it's taken a long time. The very first duty I had as the trade minister was to go to Nairobi for a WTO ministerial meeting. There, there was a huge achievement for New Zealand: Export subsidies on agricultural products were outlawed. They were banned. That will be phased in over the next five years. It's taken 40 years for that to happen.

"In the meantime, New Zealand has signed free-trade agreements with the world’s second-largest economy [China], and now through TPP, the world’s first largest and third largest, Japan and the US. We’re about to negotiate an FTA with the EU next year. So, while we need to continue to put significant effort into the WTO, benefits to the New Zealand economy are delivered through FTAs bilaterally and regional deals. So I wouldn’t put one before the other."

4. TPP dead in the water?

FERGUSON: "What’s happening at the moment in the US is on both the left and the right there is a backlash against free trade. If the Sanders-ites and the Trump-ites can agree on that one thing, then the chances of this thing [the TPP] getting through Congress are small.

“I think the TPP is already dead, actually. I don’t think the votes are there in Congress, regardless of what happens in the presidential election. This is one of President Obama’s lame duck projects."

McCLAY: Historians are very good at looking backward. None of us can soundly say what will happen in the US.

"I've just come back from an Apec meeting in Peru where ministers talked about the ratification process. The US administration, while it has work to do, is more than confident it can get this over the line. I think it will be in the 'lame duck' session [in December, post the November election but before Obama leaves office in January. Not that Obama's a lame duck. It has got a plan and it will ramp up the process to move it through [as well as the presidential signature, the TPP will need to be ratified by a majority vote in the Senate and the House of Representatives]

"So I'm confident it will be done. Donald Trump has said it's a bad deal for America. Well, he says everything Obama has said is a bad deal for America. 

"Whoever becomes president is likely to be much more moderate than they sound on the way to their party's nomination. While Donald Trump has come out strongly against the TPP and trade, what we've seen of late is him reposition on a number of things.

"Mrs Clinton has voiced some concern about the agreement but she's still going through a process where some would say she’s protecting her left flank against Bernie Sanders."