Jerri-Lynn here: In this short post, the Institute for New Economic Thinking’s (INET) Jack Gao reports on some implications of the White House’s concession that the election of Donald Trump has kayoed the Trans Pacific Partnership (TPP) agreement. Although Hillary Clinton also claimed to have reversed her initial support for the TPP, there was widespread suspicion that her public position wasn’t her private one, and that the agreement would have been resurrected in some form if she’d been elected.
I have some reservations about this post. The most serious is that Gao errs by accepting the framing of TPP as a trade liberalization agreement by its proponents. As economist Dean Baker has written:
The TPP is not about free trade. It does little to reduce tariffs and quotas for the simple reason that these barriers are already very low. In fact, the United States already has trade deals with six of the other eleven countries in the TPP. This is why the non-partisan United States International Trade Commission (ITC) estimated that when the full gains from the TPP are realized in 2032, they will come to just 0.23 percent of GDP. This is a bit more than a normal month’s growth.
In fact, the TPP goes far in the opposite direction, increasing protectionism in the form of stronger and longer patent and copyright protection. These forms of protection for prescription drugs, software, and other products, often raise the price by a factor of a hundred or more above the free market price. This makes them equivalent to tariffs of several thousand percent.
The bottom line, according to Baker:
The real story here is that the TPP is a deal about redistributing more income upward. It’s imposing more competition on those at the middle and the bottom while maintaining and increasing forms of protectionism that benefits those at the top. When reporters call the TPP a “free trade” deal, they are acting as advocates, not reporters. The TPP is a protectionist pact for those at the top who are worried that free trade will undermine their income — like it did for those at the middle and bottom.
Gaius Publus has expanded this argument further in his post entitled, Gaius Publius: TPP Is a Monopoly Protection Scheme, the Exact Opposite of a “Free Trade” Deal. I encourage interested readers to read both Gaius’s post and Baker’s post in full.
Further, Gao notes “economists differ in their assessments of TPP’s likely impact on the U.S. economy.” That’s putting it mildly. The lone study he cites claiming that the TPP would increase GDP, by a mere 0.5% by 2030, comes from the Peterson Institute for International Economics– not exactly what I would call a solid or unbiased source. Other sources are decidedly more sceptical about the TPP’s purported benefits, particularly when the weak enforcement record of labor, environmental, and human rights standards is considered.
Gao points out that concerns about inequality and transparency have made so-called trade agreements “politically toxic”. Trump’s election demonstrates this is certainly the case. But I believe his analysis suffers from his basic failure to jettison the trade liberalization label when discussing this deal (and by implication, other similar agreements, past and pending).
By Jack Gao, who is a Program Economist at the Institute for New Economic Thinking (INET), with interests in international economics and finance, energy policy, economic development, and the Chinese economy. He previously worked in financial product and data departments in Bloomberg Singapore, and reported on Asian financial markets in Bloomberg News from Shanghai. Jack holds a MPA in International Development from Harvard Kennedy School, and a B.S. in Economics from Singapore Management University. Originally published at the Institute for New Economic Thinking Website.
The Council of Economic Advisors warned earlier this month that 5 million U.S. jobs will be lost with the collapse of the Trans-Pacific Partnership trade agreement — a probability now confirmed by the White House, which noted that the TPP won’t pass Congress following the election of Donald Trump as president.
The widespread popular opposition to the mega trade deal, which prompted both presidential candidates promising not to sign it in its present form, make clear that trade policy will no longer be set by economic experts alone.
The CEA brief emphasized that forgoing TPP would jeopardize access to markets that currently account for nearly 45% of U.S. exports, and with it anticipated increases in productivity, investment, and GDP growth. The report included a detailed analysis on the impact of differential access to the Japanese market if TPP doesn’t pass but an alternative deal including China but excluding the U.S. (the Regional Comprehensive Economic Partnership, or RECP) were to come to effect. That eventuality, the CEA concluded, would threaten the market share of the 35 U.S. industries that annually export $5.3 billion goods to Japan.
Traditional arguments for tariff reductions and freer trade invoke economic efficiency and comparative advantage principles. Trade, they maintain, raises domestic welfare to the extent that cheaper imported goods become available, and countries reallocate resources into sectors in which they possess comparative advantage in order to afford the imports. However, with global tariffs substantially lower today than they were a few decades ago, arguments such as those put forward by CEA in defense of the TPP are sounding increasingly mercantilistic: These “exports are good and imports are bad” views stand in stark contradiction with trade liberalization arguments, which promise relatively small gains if traditional manufacturing sectors were opened up further.
To be clear, economists differ in their assessments of TPP’s likely impact on the U.S. economy. While the CEA emphasized the potential risks to U.S. industries and jobs, other models that tried to put a number on the TPP’s impact do not always agree on the direction of the effect on U.S. GDP, let alone its magnitude. Their conclusions depend on assumptions made in the models. A study published by the Peterson Institute for International Economics sees TPP adding 0.5% to the U.S. economy by 2030, raising U.S. wages with no effect on employment levels. In contrast, scholars at Tufts University predict declines in U.S. GDP with TPP. While proponents also list benefits such as improved labor, environmental, and human rights standards that TPP is supposed to bring, the record of enforcement of such standards once trade deals take effect hasn’t been particularly impressive. Job shifts and labor market dislocations as a result of such deals, however, seem all too real to the public.
In a domestic political environment more focused on income inequality and stagnant middle-class earnings, and where no effective institutions provide the transfers necessary to compensate those left behind, trade agreements are no longer a no-brainer for political candidates. They become even more politically toxic when those challenging such deals point out the lack of transparency in the negotiating process, and the fact that those most likely to be negatively affected are deliberately kept away from the table. As Jared Bernstein put it:
“Who would you rather have writing the rules, us or the Chinese?” isn’t the right question. That is, the answer is surely “us,” but who is “us?”
And as Senator Elizabeth Warren argued, when making the negotiation process more transparent risks raising public opposition, it may well be the deal itself — rather than the opposition — that is the problem.
The rapidly changing and increasingly unpredictable domestic political environment has stripped trade liberalization of its conventional-wisdom status in the minds of elected leaders. Economists are certainly realizing that trade deals are no longer up to them to decide on behalf of a citizenry that has felt the impact of some of those agreements, and have — by the votes they cast — shown little regard for the experts who assure them that trade liberalization is in their best interests.