The Trans-Pacific Partnership... Good, Bad, and Very Ugly

Blog Post - The Trans-Pacific Partnership... Good, Bad, and Very Ugly

The Trans-Pacific Partnership, aka TPP, is likely one of the most controversial trade deals in recent history. What makes it difficult to grapple with is how mixed its reception has been both politically and academically. You have some free trade advocates who like it because it reduces tariffs while other free market advocates despise it since it expands regulatory oversight and intellectual property laws. You have Democrats like Obama championing it, while his base despises it for not adequately addressing worker's rights. You have a Republican Party which largely would have championed it in prior years, but whose current presidential nominee rails against it. You have Hillary Clinton, who used to support it, now opposing it. And you have libertarian presidential candidate Gary Johnson supporting it despite the fact that he used to oppose it. Ideologically, it's simply all over the place, with perceived benefits and negatives often cancelling each other out.

In addition, there's an added variable which complicates matters; almost no one has actually read it. This, as we've discovered first hand, is likely due to the fact that the agreement is a whopping 5,544 pages long. It should come as no surprise, then, that much of the analysis on TPP is wrought with speculation. The unfortunate reality is, for people who desire a clear stance on an issue, there likely isn't one when it comes to the TPP. We'll do our best below to walk through some of the perceived positives and negatives, but we do so only as a genuine attempt to broaden the debate, not to offer our own endorsement for or against the TPP.

Let's start with the only presidential candidate to support it. Here's what Gary Johnson stated:

"It is my understanding that the TPP does advance free trade. ...Is it a perfect document? Probably not. But based on my understanding of the document, I would be supporting it [though] in a perfect world there wouldn’t be a document like that, there would just be free trade.”

That likely sounds fairly reasonable to most liberty-oriented voters. It appears as though Johnson's personal formula for whether to support it is one which looks for "net benefits," rather than perfection. He may disagree with others on how positively to value the positives and how negatively to value the negatives, but it doesn't sound as though his underlying principles are anti-free trade or inconsistent with libertarianism. The question is, is he right?

• The TPP appears significant given that it would be the largest U.S. FTA by trade flows ($905 billion in U.S. goods and services exports and $980 billion in imports in 2014), and would eventually eliminate ALL tariffs on manufactured products and most agricultural goods.

• "Many U.S. industries are actively interested in Japan’s participation in the TPP. ...Malaysia and Vietnam also stand out among the TPP countries without existing U.S. FTAs, given the rapid growth in U.S. trade with the two nations over the past three decades, and the potential for future growth. ... Malaysia’s and Vietnam’s average applied tariffs on imports are 6.1% and 9.5%, respectively, two of the highest levels among TPP members," so erasing those barriers would be a benefit to us.

• An updated study by the Peterson Institute for International Economics estimates that the United States stands to gain $131 billion in annual real income from TPP driven primarily by reductions in non-tariff barriers to goods and services trade. That's roughly 0.5 percent of GDP. Estimates also suggest it would increase annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030.

• For the WORLD, rather than just for the U.S., annual income gains by 2030 are projected to be $492 billion.

• By eliminating over 18,000 taxes – in the form of tariffs – that various countries put on Made in America products, TPP makes sure our farmers, ranchers, manufacturers, and small businesses can compete - and win - in some of the fastest-growing markets in the world. With more than 95 percent of the world's consumers living outside our borders, TPP will significantly expand the export of Made in America goods and services and support American jobs. ...For example, TPP eliminates import taxes as high as 59 percent on U.S. machinery products, cuts import taxes on Made in America agricultural exports to TPP countries (such as taxes as high as 40 percent on U.S. poultry products, 35 percent on soybeans, and 40 percent on fruit) and eliminates import taxes as high as 70 percent on U.S. automotive products exported to TPP countries.  In addition, it eliminates import taxes as high as 35 percent on U.S. information and communication technology exports to TPP countries.

• Feldman, a U.S. economist at Credit Suisse, cites research that estimates the TPP would only increase American GDP 0.2 percent by 2025. After all - he reasons - the U.S. already has free-trade agreements with six of the 11 other participating countries – Australia, Canada, Chile, Mexico, Peru, and Singapore. Thus, the hypothetical benefits of this agreement are thwarted, leaving only our concessions. This concern is echoed in other research, concluding that, "from the U.S. perspective, a significant share of this liberalization has already occurred due to the existing U.S. free trade agreements with 6 of the 11 TPP partners."

• A study by researchers at Tufts University predicts the agreement will actually lead to a slight DECLINE in annual U.S. GDP growth and a loss of 770,000 jobs split amongst all TPP participants.

• Paul Krugman also came out against the TPP, saying he gave it a "thumbs down." His main point was that - in general - the significance of trade policy is over-exaggerated, saying, "there’s an odd dynamic involving the role of international trade in the history of economics. Comparative advantage was an early, classic example of how economic reasoning can lead to results that are true but not obvious; naturally, economists have always wanted this intellectual victory to be important in the real world too. This leads to the odd dynamic: comparative advantage says 'yay free trade', but also suggests that once trade is already fairly open, the gains from opening it further are small. But because economists want to keep shouting yay free trade, they look for reasons why those gains might be larger – even though the stories they then end up telling are inconsistent with the competitive model that was the basis for free-trade advocacy.

The World Bank essentially summed up the above mixed results with their own conclusion, conceding that tariffs and trade restrictions "are already low" by historical standards, while also maintaining that, over time, TPP would still eliminate remaining ones, "including very high ones such as the 350 percent tariff on US tobacco imports (Oliver 2015)."

The last thing to consider regarding TPP is difficult to classify entirely as "good" OR "bad," since it raises ethical concerns regarding the proper role of government and itself has economic research splitting in both directions. It has to do with the benefits of standardization. In the case of TPP, however, that which is being standardized includes regulations, and regulations - in general - are often considered unethical, inefficient, or both. WAC's own research shows that industry standardization contributes to wage increases as shared practices help broaden the viability of skill-sets, strengthening the labor pool's negotiating position relevant to wages. To an extent, standardizing regulations may actually help firms become more efficient, in the sense that it dramatically reduces the types of regulations and/or legal systems they need to navigate. In other words, rather than having to hire a legal expert in Japan's laws, AND the United States' laws, AND in Malaysia's laws, etc, perhaps, if TPP countries move towards adopting shared standards, the dead-weight associated with compliance can be reduced.

This is referred to as a "harmonization of standards," and per the World Bank, "the sectors selected for such an approach include cosmetics, medical devices, pharmaceuticals, information and communications technology products, wine and distilled spirits, proprietary formulas for prepackaged foods and food additives, and organic agricultural products. The provisions of the agreement cover labelling requirements for wine, marketing authorizations for pharmaceuticals, medical devices and cosmetics, and encourage mutual recognition of standards for organic products as well as mutual recognition of conformity assessment of telecommunications equipment." In order to consider this a "benefit," one would have to first consider these acts by governments as ethical. With that set aside, however, they DO appear to at least be more efficient than having each country stick to its own unique standards, thereby increasing the burden of compliance.

The TPP is simply all over the place; politically, ideologically, ethically, and academically. Hopefully, with the information provided above, you can decide for yourself whether or not to support or oppose it. The only easy conclusion should be that it's far less obvious than politicians make it out to be.


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