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Who’s Afraid of the TPP? Navigating the “Notorious” Trade Deal and Its Impact

December 24, 2016
Post- 2016 presidential election season, it is unlikely that anyone remains unaware of the heated debate surrounding the Trans-Pacific Partnership (TPP). Unfortunately, with the continued tussle between the deal’s supporters and detractors, the true impact of the agreement has become increasingly difficult to distinguish from hyperbole.

By Jordan Miller

While President Obama insists that the trade deal will ease business for roughly 40% of the global GDP and fulfill a needed “pivot to Asia”,[1] the TPP remains an issue of great contention among other Democratic party leaders as well as presidential nominee Hillary Clinton (not to mention Republican candidate Donald Trump) who excoriate the deal as a failure of globalization and an abandonment of American workers.[1] So what should we really think about the impending Trans-Pacific Partnership? In this author’s opinion, analysis of the deal reveals that it is valuable despite its flaws. While the trending U.S. presidential contest has raised valid concerns about the TPP’s impact on vulnerable groups both here and abroad, the deal still offers extensive benefits for both the American and global economies and therefore should be implemented as soon as possible.

In fact, an independent report drafted by the Peterson Institute for International Economics and highlighted by the New York Times suggests that the deal would actually increase incomes, exports and growth in the United States. According to the report, real incomes could rise by as much as $131 billion dollars annually (an entire .5% of GDP), with exports predicted to reach a whopping $357 billion by complete deal implementation in 2030.[1] Work conducted by economists Lawrence and Moran (2016) and cited by the Center for Economic and Policy Research suggests that the deal would raise productivity for both unskilled and skilled labor, going so far as to improve U.S. income distribution by rising wages relative to capital returns while reducing the prices paid by low income households.[2] This sort of data directly contradicts lawmaker complaints that the deal would open up the floodgates on a “race to the bottom”, where U.S. manufacturers are forced to lower working standards to compete with the cheap labor overseas.

Of course, a cautious approach to free trade deals is hardly unwarranted. The American record with previous regional trade pacts – including President Clinton’s oft-cited North American Free Trade Agreement (NAFTA) – has been mixed at best. The AFL-CIO claims that almost 700,000 Americans lost their jobs over the course of NAFTA implementation, as cheaper manufactured goods were produced outside the United States. [3] Some current reports of the TPP suggest that manufacturing sector growth might be reduced by up to a fifth, and that macro-shocks might be generated if export and import changes failed to stabilize each other. [2] Yet despite these critiques, there is reason to believe that the Trans-Pacific Partnership will bring about a more positive result capable of negating such concerns. Lawrence and Moran (2016) have argued for example that it is highly unlikely for either net employment gains or losses to occur as a result of the deal, and that “macro-shocks” are also unlikely to occur. [2] While it is true that workers in certain industries might be displaced in the short term (the so-called “churn effect” between jobs), the effect of the TPP is estimated to impact 1% [4] of workers and may even benefit fields like U.S. trade services and advanced manufacturing that are suddenly more relevant. [5] Of course there may be some merit to concerns that the 10-year timeframe of implementation will create drawn-out suffering, though any negative impact from this has yet to materialize.

Less frequently mentioned in public discourse is the positive impact that TPP implementation will have on our allies and partners in Southeast Asia, both economically and geopolitically. As a “new generation” trade deal, the TPP is designed to remove traditional barriers to trade in goods while also improving workers’ rights and intellectual property protection. [5] Yet while it may seem obvious that nations like Australia, Canada and the United States will benefit from the promotion of such liberal economic principals, can the same be said for smaller partners such as Brunei or Vietnam? In fact, the answer is yes, as it is these nations that stand to benefit the most from economic reform. According to the Global Economic Prospects 2016 report, the GDP benefit of the deal to current NAFTA members (such as Mexico and Canada) will actually be smaller than for ASEAN nations because trade takes up less of their income. [5] Southeast Asian states meanwhile will benefit immensely from the pact, with Vietnam projected to increase its GDP by 8.1%, and Malaysia by 7.6%. [2]

Even more importantly, individual workers stand to benefit greatly from the deal as real wages in places like Vietnam skyrocket by as much as 14%. [5] There is also something to be said for the societal changes that are likely to occur as states look to enter the TPP. The deal has committed all signatories to the ILO Declaration of Fundamental Principles of Rights at Work, which mandates that workers should be allowed freedom of association, collective bargaining rights and prohibition on forced and child labor. Though these ideals may seem utopian, observers point to side-letters between the United States and various member governments indicating their commitment to reform. [2] The most surprising of these may be the economic steps currently underway in Vietnam, whose authoritarian government has agreed to allow the development of independent unions as a condition for joining the TPP. [6]

Of course, some issues will still need to be resolved. Many of these countries are already linked by a mass of competing Free Trade Agreements, suggesting that deals alone will not be sufficient to cause liberal economic changes. [7] Additionally, as the guarantor and largest country within the bloc, the United States will have disproportionate clout to set policy however it likes, which has already sparked some tensions between member states. Many American priorities continue to clash with those of countries like Australia, particularly whether an investor-state dispute mechanism will infringe upon other deals or if sectoral carve-outs from previous treaties should apply. [8] Even more concerning, the U.S. still refuses to negotiate in certain market areas while demanding concessions of other nations’ protected industries. Some parties have even stated their concern with U.S. ambitions vis-a-vis China, and worry that their economic assistance will be coopted into a modern-day containment strategy. [8]

While these are all valid concerns by member states, no confidence between them and the United States can be built if the deal is scrapped at the last minute. Even if the distribution of gains and losses to all parties involved proves somewhat unequal, [2] dismantling the deal on this basis would negate the clear good that the Trans-Pacific Partnership will bring. There is no doubt that the TPP must be managed once it is established, but success of any kind can only come when the treaty is ratified. What’s more, delaying the deal now by even one year is projected to waste roughly $77 billion dollars in opportunity cost, a sum the U.S. government can hardly afford to throw away. Especially with the facts the way they are, the only sound course of action is to ratify the deal and take advantage of this historic chance at economic progress.

References

  [1] Granville, Kevin. “The Trans-Pacific Partnership, Explained.” New York Times, last updated August 20, 2016, http://www.nytimes.com/interactive/2016/business/tpp-explained-what-is-trans-pacific-partnership.html

  [2] Petri, Peter and Michael Plummer. “Economics of the Trans-Pacific Partnership: Distributional Impact.” April 30, 2016. http://voxeu.org/article/economics-tpp-winners-and-losers

  [3] AFL-CIO,. NAFTA At 20. Washington, D.C.: AFL-CIIO, 2014. http://www.aflcio.org/content/download/121921/3393031/March2014_NAFTA20_nb.pdf.

  [4] Calmes, Jackie. “Trans-Pacific Trade Pact Would Lift U.S. Incomes, but Not Jobs Overall, Study Says.” New York Times, January 25, 2016.

http://www.nytimes.com/2016/01/26/business/international/trans-pacific-pact-would-lift-us-incomes-but-not-jobs-overall-study-says.html

  [5] Lakatos, Csilla. “Potential Macroeconomic Implications of the Trans-Pacific Partnership.” Global Economic Prospects (2016): 219-255

  [6] Galston, William A. “The Trans-Pacific Partnership: The view from the Obama Administration”. Brookings FIXGOV Blog. January 28, 2016. https://www.brookings.edu/blog/fixgov/2016/01/28/the-trans-pacific-partnership-the-view-from-the-obama-administration/

  [7] Deardorff, Alan V. “Trade Implications of the Trans-Pacific Partnership for ASEAN and Other Asian Countries.” Asian Development Review vol. 31 no. 2 (2014): 1-20.

  [8] Capling, Ann and John Ravenhill. The United States Studies Centre at the University of Sydney. The Trans-Pacific Partnership: An Australian Perspective. November 2012. http://alliance.ussc.edu.au/wp-content/uploads/2015/07/alliance-21-report-united-states-capling-and-ravenhill.pdf 

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