03/18/2012 10:24 pm ET Updated May 18, 2012

Our Muddled China Policy

Last week, speaking at the White House, President Obama announced that he was joining the European Union in filing a major trade complaint against China, for its export controls on so-called "rare earth" minerals. These are used in everything from micro-electronic devices like smartphones to flat-screen televisions, hybrid car batteries, energy-efficient lighting and wind turbines. China dominates world production of rare earths and refuses to allow their export and sale to follow normal commercial principles.

Despite this get-tough stance, however, the administration's main trade initiative towards Asia is a little known pending agreement, the proposed Trans-Pacific Partnership. This deal, which the White House hopes to conclude by year's end, would sidestep the mercantilism of China and other Asian nations that is displacing U.S. manufacturing; it would do nothing to raise labor or social standards, and would make the outsourcing problem worse.

The deal, announced last November, is being sold as a way to create a U.S.-led, rival group of nations to Chinese domination of the Pacific economic region, through trading partnerships with several smaller nations including Vietnam, Malaysia, Singapore, New Zealand, and eventually South Korea and Japan. The deal is being negotiated in secret, using the "fast track" provision characteristic of trade agreements, so that there can be no advance scrutiny by Congress or the public. The final deal just gets an up or down quickie vote. However, more than 600 corporate representatives have been given access to the negotiating documents, which suggests whose interests the deal is really intended to serve.

Official pronouncements and leaked documents suggest the following:

The proposed TPP would make it easier for domestic and foreign corporations to challenge a broad range of health, safety, environmental, consumer, labor, and financial regulations as interfering with "trade." Gretchen Morgenson, in Sunday's New York Times, pointed to the danger that NAFTA poses to financial regulation by giving both foreign governments and trans-national corporations a rationale for challenging, say, the Dodd-Frank Act. The proposed TPP, which Public Citizen's Lori Wallach calls "NAFTA on steroids," would be far more damaging. Private firms could sue governments directly to challenge regulatory policies.

The deal would not improve on the weak labor provisions of recent bilateral trade deals.
Participating countries could continue to bash unions with impunity. There is no meaningful enforcement mechanism to enforce labor rights. Though corporations get to appeal to special tribunals if they feel that national regulations of corporations or banks interfere with their business strategies, there is no counterpart for direct appeals of violations of labor rights.

The TPP would actually make it easier for China's state-led capitalism to organize production and supply chains with member nations of the TPP agreement. China-financed and subsidized products partly produced outside China would then enter US markets labeled as if they originated in, say, Vietnam, even though most of their content could actually originate in China. The deal would be a real menace to U.S. industries that are struggling to survive, such as auto parts, steel, and renewable energy.

The deal would also accelerate outsourcing by U.S. firms, since it would provide new guarantees to protect US investment in Asia. It would do little or nothing to reduce hidden Asian barriers to American exports.

Given the very real problems that China poses -- its under-valued currency, its WTO-illegal export subsidies, its theft of intellectual property, its coercion of technology transfer -- none of which the TPP addresses -- why on earth is the Administration promoting this deal?

There is old joke about a drunk looking for his keys under a streetlight. A passerby asks if the drunk dropped the keys nearby. The drunk replies no, but the streetlight is where the light is shining.

The real problems that the U.S. needs to address in its trade with Asia are hard. A more assertive stance toward China would alienate the U.S. corporations that profit from its capital subsidies and oppressed labor. It's far easier to find a streetlight that illuminates a different, less contentious set of issues that corporate America supports.

The small Asian nations both fear China's regional domination but need China's collaboration, and also need access to the U.S. market. By binding them more closely to America's economic orbit, U.S. officials have convinced themselves that this helps create a counterweight to China. But this is an illusion. In the absence of real counter-pressure and serious diplomacy, China's lethal combination of state-subsidy, cheap capital, and exploited labor will continue displacing American industry. A bilateral trade deal with Korea, or a multilateral one with several smaller Pacific nations, does nothing to solve the more pressing problems.

This is supposed to be a period of bitter bipartisan deadlock, in which Republicans and Democrats can agree on nothing. But when it comes to trade deals that serve corporate but not the national interest, bipartisanship is all too alive and well.

Like NAFTA before it, which was cooked up under Bush I and completed by Clinton, the proposed Trans-Pacific Partnership was conceived by a Republican administration (Bush II) and is being carried forward by a Democratic one (Obama).

NAFTA did immense damage to relations between Democrats in Congress and the Clinton White House. It was eventually approved mostly by Republicans, with two-thirds of Democrats in the House opposed. It contributed to the mutual bad feeling that helped Republicans take control of Congress in the 1994 mid-terms.

The TPP has a much lower profile, but its economic effects would be at least as damaging. Political and diplomatic capital that should be expended on the far more serious China trade problem are going instead to enact a secret deal that would only make it harder to have a regulated form of capitalism with decent standards both for production and for trade.

The bipartisan trade establishment and its corporate allies have been pushing these cookie-cutter trade deals for three decades. With each succeeding deal, our trade imbalance worsens and our manufacturing industry gets more hollowed out. There is a parallel bipartisanship in the failure to regulate finance, and this trade deal would weaken financial regulation as well.

Going into a crucial election, if the administration and its political strategists wonder why there is not more appreciation of Obama's good deeds on the part of ordinary working people, they need look no further than its policies on Wall Street and on trade.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is "A Presidency in Peril."