Last Thursday in New Zealand witnessed the signing of a sweeping Pacific trade agreement by officials from 12 countries, which completes a process that will lower tariffs and set commercial rules for two fifth of the world’s economy –if the deal is ratified.
Trans-Pacific Partnership Free Trade Agreement (TPP)
In the U.S., the 2016 election season is testing politician’s support of the TPP negotiations. Democratic presidential candidate Hillary Clinton changed her position and said that she isn’t in favor of the agreement, despite calling an earlier TPP framework the “gold standard” of trade agreements while she was Secretary of State. Republican candidate Donald Trump has even put forward a totally opposite trade policy, imposing new tariffs on imports from Mexico and China.
“Hillary Clinton Switches Sides On Trans-Pacific Partnership (TPP) Debate” – Hillary Clinton was one of the pioneers of the TPP and the pivot to Asia during her time as Secretary of State, but she just came out against it.
Video link: https://youtu.be/F2Ovgc1BEmg
Similarly, a former U.S. Trade Representative, Mr. Portman, now ready for re-election this year, signaled Thursday “he had concerns over the trade agreement” even though he voted in June to expedite the TPP negotiations and congressional passage. Nonetheless, the heated economic arguments in the trade debate make it even harder to pierce the veil of those politicians’ sudden change of attitudes.
According to a study published by the Peterson Institute for International Economics, trade liberalization would raise U.S. gross domestic product and wages by a small amount and greatly boost the growth of trade in goods and services, though it admitted that trade agreements would possibly expose less advantaged industries and companies to harsh international competitions, and thus result in workers switching jobs to more competitive firms and industries. “The benefits of the TPP to the U.S. economy will greatly outweigh adjustment costs, and that economy-wide price and employment consequences will be limited,” wrote Peter Petri and Michael Plummer in the study.
Meanwhile, labor groups have questioned the economic model built by Petri and Plummer. They embraced arguments from a competing report from the Global Development and Environment Institute at Tufts University, which forecast that the TPP would result in a loss of 0.54% of national income over 10 years. Other economists say trade agreements could further increase the U.S. trade deficit or result in skewed benefits that exacerbate income inequality.
AFL-CIO –the biggest U.S. labor federation, and most U.S. presidential candidates have convinced themselves that NAFTA’s causing most of the U.S. manufacturing to decline forebodes the same consequences from TPP. It is also reasonable in a political backdrop that the most affected U.S. industries are older industries that were unionized and cartelized before they faced competition from abroad. For example, Congressional Democrats, backed by labor groups, strongly oppose Mr. Obama’s trade policy, saying it could intensify the harmful effects of globalization.
But trade agreement is after all a small part of the overall trade (the so-called 40% coverage on global GDP is somehow irrelevant to the issues here, since TPP doesn’t cover domestic trade and has a negligible effect on its commerce) and is highly unlikely to cause serious job losses in the U.S. on its own. The history and political science suggest that unions and their friends may just want to preserve political power, and that once the politicians gain the White House and when the time is right, most of them would turn to support TPP.