TPP not equal to “free trade”

January 13th, 2016 at 2:03 pm

I have written extensively on this point: there’s a big difference between those magical words “free trade” that everyone invokes in this town whenever the topic comes up, and actual trade deals. But I think Rep. Sandy Levin thoroughly nailed this distinction in testimony before the International Trade Commission this morning:

We all recognize that trade can be beneficial. The issue is not whether Members of Congress such as myself could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class.

What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement in our trade agreements? What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? Does the theory of comparative advantage address these new issues?  No – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today.

Levin’s full testimony is here and looks very thoughtful.

He points to a new World Bank report that models the growth impact of the TPP by 2030 on both member and non-member countries. The magnitude of the US impact–maybe 0.3-0.4 percent–belies a lot of the noise you hear about this sort of thing, and is surely statistically indistinguishable from no change at all.

But if such modelling is in the ball park at all, the benefits of the deal are substantial to some emerging economies. The Bank predicts that the TPP will boost Vietnam’s exports by 30%. However, to their credit, they also simulated the impact of non-member countries, which lose export share to TPP members, showing that once again, the punchline is that “free trade” is a misnomer, a mixed bag with winners and losers.

World Bank: Impact of the TPP on GDP growth by 2030 in member and non-member countries

Source: World Bank

Source: World Bank

[Note: “LAC nei” includes Argentina, Bolivia, Brazil, Costa Rica, Ecuador, Guatemala, Honduras, Rest of the Caribbean, Nicaragua, Panama, Rest of Central America, Paraguay, El Salvador, Uruguay, Venezuela RB, Rest of North America, Rest of South America.“Asia nei” includes Bangladesh, Kazakhstan, Kyrgyz Republic, Mongolia, Nepal, Pakistan, Rest of South Asia, Rest of Former Soviet Union, Rest of Western Asia, Sri Lanka. “EAP nei” covers: Cambodia, Lao PDR, and Rest of Southeast Asia. “SSA” indicates Sub-Saharan Africa.]

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4 comments in reply to "TPP not equal to “free trade”"

  1. Amateur says:

    Thanks for the interesting insight. Most US citizens know that most US workers have been on the losing end of trade agreements. Now we see that this agreement doesn’t just pick winners in the US (capital owners over labor), but it also picks winners among nations.

    This looks like the opposite of free trade to me. It is rigged trade.

  2. Amateur says:

    You are the first to receive the new website. The old is gone and the new is coming…

    You and Dean Baker are the only ones worth of notification. I’ll let you know…

  3. purple says:

    TPP is a closed trading system more in common with Imperial preference. It’s not a good sign when spheres of influence start walling each other off.

  4. Keith Roberts says:

    I wonder if the impact of agreements like TPP isn’t a lot larger and more malign than even the labor unions recognize. Adam Smith and David Ricardo favored free trade at a time when this meant trade in commodities and manufactures. But late 20th century tech developments such as speedy broadband communications, automation with “smart” machines, less expensive transport, and new materials have made it much more feasible to outsource work and take advantage of cheap labor. So a byproduct of these agreements has been to expose the labor of developed countries to an international market dominated by the cheap labor of developing countries. Not only have many jobs moved away; the fear of job loss has largely paralyzed employees and seems to me the most important factor in the stagnation of wages that is a phenomenon throughout the developed world.

    What troubles me the most is that in our political life the only people responding to this stagnation are the Republican candidates, who focus not on resolving the stagnation, but on rallying the emotions of anger, fear, and worry into a farrago of demagoguery and scapegoating. Sanders, with his preoccupation about inequality, totally misses the immediate problem that besets American employees. Obama and Clinton, focusing their employment concerns on the minimum wage, propose little for the middle class–which is the group that votes and that responds to Trump et al.

    And yet solutions seem feasible. Insert some wage protections into these free trade agreements. Impose taxes on the profits that corporations make by using cheap labor overseas, and devote the proceeds to employment benefits, such as subsidizing health insurance costs. And for heaven sakes let’s impose a sales tax on foreign corporations selling into the US, keyed to the labor differential. I am sure there are many other and better solutions as well. But Bernie or Hillary have to recognize the issue, give it priority, and set their braintrusts to working on solutions. Otherwise, we and our descendants will all rue the next Presidential election.