US Politics: A Lame TPP

Published on June 3, 2016

Key Takeaways:

President Obama and House Speaker Ryan are working closely together to build legislative support to pass the Trans-Pacific Partnership trade bill in a lame duck session of Congress

The prospects for a TPP December passage are not great, but are far better than next year when it would likely be withdrawn by a hostile White House

The upcoming political battles over trade bills threaten a key macro driver in the possible abandonment in the post-WW2 consensus to expand markets globally

If TPP and TTIP fail, it puts even greater pressure on fiscal and tax policies to spur growth

With fierce populist attacks dominating this year’s US presidential campaigns, it is hardly surprising low odds are being given to near-term passage of the Trans-Pacific Partnership trade bill. What’s more, prospects look even bleaker for the Transatlantic Trade and Investment Partnership accord in Europe, which faces equally entrenched political resistance, especially in France.

*** Despite the poor odds, President Obama and House Speaker Paul Ryan are closely coordinating a legislative lobbying effort to pass the TPP bill, probably in a lame duck session after the November elections and before the January start of what is likely to be a hostile White House regardless of who becomes president, accompanied by a more populist, anti-trade Congress. ***

*** To pass the TPP, Speaker Ryan may need up to 60 Democratic votes in the House, while Senate Majority Leader Mitch McConnell may need up to 15 Democrats to secure a filibuster-proof 60 votes. Outgoing Senate Minority Leader Harry Reid opposes the TPP, while the incoming Democratic Leader Chuck Schumer is lending his support to Obama’s efforts to secure the needed Democratic votes mostly to avoid an ugly political brawl early in what could be a Schumer-led Democratic Senate majority and he hopes an incoming Clinton Administration. ***

*** Global growth prospects are almost certain to come under attack over the next half-decade, with the first casualties of war potentially being TPP and TTIP. In a broader and shifting ideological context, the leaderships of both parties and their centrist members will be increasingly battling their own populist wings over the best means to lift working and middle class incomes. This, we believe, will also play into the changing politics of increasingly turning to fiscal and tax policies to spur growth (see SGH 5/6/16, “US Politics: The Fiscal Accelerator”). ***

Early Legislative Lobbying

The Trans-Pacific Partnership trade bill, concluded after seven years of negotiations, would remove trade barriers, quicken procedures, and lower tariffs in the largest trade market (measured by dollar value of trade flows) of which the United States is a party. The TPP includes the US and eleven Pacific Rim countries, with the notable exception of China.

As a domestic US political issue, TPP has always faced a difficult political battle to win passage, even after the Trade Promotion Authority, which ensures an up or down vote on the subsequent trade bill itself, was narrowly passed in June 2015.

But President Obama considers it a legacy issue and has vowed to lobby hard for its passage among reluctant Democrats on the Hill. Capitol Hill Republicans, at least the party’s mainstream establishment, likewise see it as a core economic policy issue and therefore a priority. Obama and the GOP leadership, however, face a rising tide of a highly vocal populist revolt against free trade and for that matter, most other centrist free market economic policies.

Fully aware the bill is likely to face an even more daunting passage next year with a new Congress and a new White House, Obama and Ryan conferred early last month to map out a coordinated strategy to push TPP through the current Congress. There have also been consultations with the key committee leadership to work out a timetable.

The two have already worked closely together, in June last year, to push the House to adopt the necessary first step to concluding TPP, known as Trade Promotion Authority, or “fast track,” on the second try after a bitter debate, much to the displeasure of most Democrats. Now to win a sufficient number of Democratic Senators to support his final legacy trophy in the TPP trade bill, President Obama has acknowledged he needs to do most of the heavy lifting on his own.

The White House is already working to address issues related to financial services, tobacco, and medicines in order to win over a handful of reluctant Democrats, and has likewise ironed out a few accelerated procedural issues with most of the eleven Pacific Rim TPP member countries to ensure they comply with the TPP framework before Congress votes to ratify the trade agreement.

While not technically lobbying Congress, we expect representatives of TPP-signatory countries with strong relations with both US political parties, such as Australia, Japan, Mexico, and New Zealand, to promote their support for TPP during the lame duck, no doubt after some cajoling from the Obama White House.

We discount the talk of pushing the TPP bill to floor votes before the November elections, which would require the bill to be moved out of the Senate Finance and House Ways and Means Committees no later than early September. The chairmen of both committees, Senator Orrin Hatch and Congressman Kevin Brady, strongly support the bill, but a vote during a lame duck session in December is deemed much more realistic.

Tough Senate and House Votes

The bigger battle for votes will invariably be in the House. Ryan has indicated he will need up to 60 Democratic votes to reach the 218 necessary votes for passage, as there is already a sizable bloc within the House Republican conference strongly opposed to trade bills. House Minority Leader Nancy Pelosi, who opposes the deal, is however said to have promised not to actively “whip” votes against it.

But even in the Senate, it faces an equally difficult task, in that Majority Leader McConnell may need up to 15 Democratic votes to ensure a filibuster-proof 60 votes. It is unclear how much ability the GOP leadership has to whip their rank and file members, as they have struggled to do so ever since they retook the House in 2010 and Senate in 2014.

Furthermore, a filibuster is all but certain, and is as likely to come from the GOP ranks with Texas Senator Ted Cruz first in line, as from the Democratic ranks, among them, Vermont Senator Bernie Sanders, assuming he fails in his current presidential bid.

While neither Minority Leader Reid nor his number two, Senator Schumer of New York, are especially keen on the bill, they are both keen nonetheless to clear next year’s legislative calendar of such a tough vote early in what they hope will be an incoming Democratic Administration under President Clinton, not to mention a return to Democratic control of the Senate.

If 60 votes looks unlikely, Majority Leader McConnell may try to resort to the reconciliation process, which means TPP passage would only require a simple 51 majority vote floor vote.

Under the so-called Byrd Rule, that would require a ruling by the Congressional Budget Office that TPP will boost the economy enough to generate big revenues or lower budget costs. But the odds, while not impossible, are not especially high that the conservative CBO will indeed score the bill in that way.

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