In the wake of the unfolding events in Afghanistan and doubts in Asia about the durability of American commitments, the United States should rejoin the Trans-Pacific Partnership.

Trade allows nations to specialize in what they do best. Value-added per employment is about 11% greater in U.S. export industries than import-competing activities; consequently, specialization adds about $280 billion annually to gross domestic product.

U.S. exporters spend more on research & development and creative intellectual property than other businesses. Wider global markets permit Apple (AAPL), Intel (INTC), Disney (DIS) and Netflix (NFLX) to invest more in new products and more fundamental research.  

Exports allow larger R&D budgets and fuel further, dynamic gains from trade, whose cumulative effects are likely much larger than the static gains noted above.

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Complexity of global markets

Disruptions imposed by COVID illustrate the complexity of global supply chains. Best-in-class methods and dominant market shares for the 300 or so components, processes, tools and chemicals in the semiconductor industry are broadly distributed across the United States, China, Japan, Taiwan, Korea, Australia, India and several other nations.

International market access is required for any one player to thrive. If China, for example, enjoyed substantially better access than the United States, because its competitors faced lower tariffs or were positioned to define global product standards, American businesses and workers would lose out.

Textbook models of free trade assume balanced international commerce but in normal times, the United States runs about a $700 billion deficit on trade in goods and services.

This is enabled by the dollar’s status as the reserve currency.  

Central banks around the world hold U.S. dollars and bonds to back up their currencies. The dollar is the currency of choice for international commerce and many international investors. As the demand for liquidity and financial assets expand, the United States can print dollars to pay for billions in imports without providing exports in return.

The trade deficit is also caused by the mercantilist practices of China and other nations. Instead of selling Vietnam vehicles made in Detroit, Ford (F) has an assembly plant there to avoid tariffs that range up to 70%.

Long-run drag on economy

Consuming more than we produce raises U.S. living standards in the short run but costs America dearly in lost high-tech sales, R&D budgets, growth, and future resources to finance government services, social benefits and the military.

China captured leads in 5G and solar-panel technology by offering firms such as Huawei generous subsidies and limiting foreign competitors’ access to its domestic market.

Had the United States permitted Huawei to become a near monopoly global supplier of 5G by not blocking sales here and persuading the U.K., Canada, India and others, China’s national champion would have been in a position to de facto set global standards for components and software for internet backbone devices such as routers, smartphones, microprocessors and operating systems.

The modern world trading system was conceived as a system to link market economies, but China has abused more-open trade to great advantage. Its trade surplus with the United States is in part responsible for its faster growth and stock of dollars it uses to finance its military, Belt and Road Initiative and other instruments of soft power.

TPP was intended to contain China

President Barack Obama conceived of the TPP to contain China and improve U.S. market access in Asia, but Donald Trump withdrew the United States. Along with Biden’s disinterest, that leaves the field open to China.

China has formed the Regional Comprehensive Economic Partnership, a more limited arrangement in Asia that only lowers tariffs, and is exploring membership in the TPP. As a member, China could force smaller states to acclimate to its state-directed capitalism through how TPP rules are interpreted and enforced. and could block American participation.

As an alternative the Biden administration is considering offering a digital trade deal—a common set of standards governing how cross-border data flows—and companies that collect, store and process that data—are treated. However useful, this would be an inadequate substitute for rules governing government assistance for the development and market access for hardware and software, platform industries such as autos and the vast array of goods and services that define the emerging green economy.

With China, the TPP would become the world’s largest trading block with about one-third of global GDP and in a position to exercise a high degree of influence over the global rules for all those activities.

The United States simply can’t afford to cede the field to China and should rejoin the TPP.