Supporters of Obamatrade won in the Senate by selling the idea that Fast Tracking would strengthen American power. They cited a letter signed by several former defense secretaries which claimed:
There would be harmful strategic consequences if we fail to secure these agreements. In both Asia-Pacific and Atlantic, our allies and partners would question our commitments, doubt our resolve and inevitably look to other partners.
Unfortunately, these defense secretaries did not understand the economics of trade deficits. The Trans Pacific Partnership (TPP), the first deal that Obama is negotiating, would actually accelerate the destruction of U.S. power by growing our massive trade deficits.
Trade Deficits and Power
It is clear at this point that TPP would increase U.S. trade deficits. Amendments to combat mercantilist currency manipulation were narrowly rejected in the Senate because TPP backers argued that U.S. insistence on ending currency manipulation would lead others (e.g. Japan) to scuttle the deal. Instead, TPP will enable currency manipulation, the chief technique used by mercantilist countries to expand their trade surpluses and our trade deficits.
The basic contention of mercantilism (the strategy of running intentional trade surpluses) is that maintaining a favorable balance of trade leads to an increase in national power. Hence, running a trade surplus is a means to the end of increasing national power and wealth, while running a trade deficit undermines these. There is nothing new in this contention. It is expressed in the Bible in Deuteronomy (15:6):
Thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt rule over many nations but they shall not rule over thee.
Mercantilist governments buy foreign currency (as part of their currency manipulations) and then they lend that currency to foreign nations. In this way they gain trade surpluses and power. We analyzed the economic reasons why trade deficits undermine national power in our recently published book Balanced Trade.