Dispatches from the Potomac#17 | The Need to Face an Increasingly Protectionist US

In February 2016, the governments of 12 countries, including Japan and the US, signed the Trans-Pacific Economic Partnership Agreement (TPP). Six months later, many people in Washington are saying that it will be difficult for the US to ratify the TPP before the end of this year. What has changed in half a year?

This article was originally written in July for publication in the August 2016 edition of the Marubeni Group Magazine, M-SPIRIT.

Washington D.C. Office General Manager, Marubeni America Corporation    Takashi Imamura

Republicans Become Protectionist as Trump Charges Forward

The conflict in Congress between the Democratic Party and the Republican Party is increasing, but this is not the direct cause of the lack of progress on TPP deliberations. There are internal conflicts in both the Democratic and Republican parties concerning TPP. In the Democratic Party, although the Obama administration is promoting TPP, the number of Democrats in Congress who agree is limited. The majority of Democratic lawmakers tend to oppose TPP, in accordance with the views of the labor unions that have supported them. The Republican Party mainstream supports TPP, but conservative hardliners and anti-mainstream factions oppose it. The reasons differ among the opposing factions. The former faction wants to interfere with President Obama’s legacy, and the latter contains many working-class people, who fear that TPP will take away jobs. Nevertheless, from the two parties combined, there was a majority of lawmakers supporting TPP, and President Obama had the approval from Congress to conduct trade negotiations, leading to the signing of the TPP.

The situation surrounding the TPP changed as a result of the run-away success of the real estate mogul Donald Trump in his bid to become the Republican presidential nominee. From the time he announced his intention to run, and throughout his campaign, Mr. Trump has voiced opposition to TPP. This is an unusual stance for a Republican presidential candidate; although it is a stance that appeals to the working class, which is the base of his support, and he indicated that he may soften this position if it is necessary to gain the support of the mainstream faction. During the Republican primaries, however, the mainstream faction suffered unexpected reversals, and all the mainstream candidates supporting TPP withdrew, leaving Mr. Trump to claim the nomination at the Republican convention as a representative of the anti-establishment faction. Opposition to TPP became even more intense, including demands to withdraw, and the party leadership as well as the mainstream faction has moved toward Mr. Trump’s position. Heading into the presidential election, even the Republican Party statement on trade policy is tending toward a protectionist stance, as is clearly apparent in Mr. Trump’s “America First” attitude, and opposition to the ratification of TPP this year is part of this.

The mainstream faction of the Democratic Party also faced a similar turn-around. Senator Bernie Sanders, the self-styled “democratic socialist," put up a good fight for the presidential nomination, and the TPP opposition he voiced gained support within the party. Even the former Secretary of State, Hillary Clinton, who was named the presidential candidate of the Democratic Party, struggled in the primaries and had no choice but to oppose the TPP that she promoted during her time as Secretary of State. The Democratic Party policy statement does not include complete opposition in consideration of President Obama, yet states a cautious stance toward TPP. Thus, the number of TPP advocates in the Democratic and Republican parties has decreased, and it is harder for them to speak out; so approval of TPP this year clearly has become more difficult.

Outrage of Middle and Lower Classes Converts into a Political Force and May Have Lingering Consequences

Originally, there was no particular tendency for proactive protectionism or opposition to TPP in politics. The goal of promoting TPP and approving it by the end of the year changed because candidates were not winning elections. The reason that the presidential candidates and senators switched to opposing TPP is public opinion. Under the Obama administration there has been a long period of economic expansion, but the real income of the middle class and lower levels has stagnated, while increasing in the high-net-worth, high-income groups, so that the gap in income has grown to the same level that it was in the 1920s. Employment in the manufacturing sector is continuing a long-term decline. These changes have been underway for a long time. The Republican presidential candidate Donald Trump and the Democratic candidate Bernie Sanders express empathy for the frustration of the US citizens in the middle and lower classes who are facing this harsh reality, and support for these candidates has grown rapidly in the last six months. In such a short period of time, the outrage of the American majority, who make up the middle and lower classes, has been manifested politically for the first time.

Even after the presidential and congressional elections are completed in November, the extreme gap in income and wealth will still remain; and the manufacturing jobs that have disappeared from the US will not be returning. Even if Mr. Trump loses the election, his success during the past six months is evidence that the anger and struggles of working-class Americans and those in the middle and lower classes can be converted into a powerful political force. If there is no reduction of the wealth gap or improvement in the employment environment, another Trump is likely to appear, and voters will probably be looking for him. This produces the pressure for deeply-rooted protectionism in the trade policies. Such a structure is not likely to change quickly.

The US is one of the most important markets for the Marubeni Group, which is working to expand their business further. It is worrisome that the current trend of protectionist sentiment in the US seems likely to intensify and continue for some time. Nevertheless, the US will undoubtedly continue to be an important market. The only path is to be prepared, and to strive even harder to be a company that is well-regarded by most Americans, and continue to create quality employment opportunities and added value.