All things considered, TPP would’ve been a plus for US economy
President Harry Truman once famously said, “Give me a one-handed economist.” He was tired of hearing economists say, “On the one hand ‘this’, but on the other hand ‘that.'”
On the issue of the Trans Pacific Partnership, Harry Truman would have hated me. On the one hand, I think that, on net, the TPP would have been good for the world and good for the United States.
{mosads}On the other hand, someone else looking at the same facts could quite reasonably reach the opposite conclusion.
How so? By putting different probabilities on how stringently various clauses of the TPP would be enforced.
This may all be moot now, given President Trump’s decision on Jan. 23 to withdraw from the agreement.
It might have been moot even before that, though, because the chances of getting the TPP through Congress were low.
But it’s still worth considering what was good and what was bad about the agreement.
The most-obviously good parts of the TPP were the mutual reductions in trade barriers between the United States and the 11 other countries included in the agreement — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
One of the most well-established conclusions in economics, both theoretically and empirically, is that moves toward free trade, except in very rare circumstances, make the vast majority of citizens in partner countries better off.
Each country gets to specialize in the goods for which it is the lower-cost producer. Just as trade between Virginia and California makes sense, so too does trade between the United States and Australia.
Fewer trade barriers allow producers to have a longer, more-efficient supply chain. But even aside from supply chains, freer trade allows consumers to buy from the most-efficient producers.
There are other upsides. One is that the TPP would, to an extent, protect foreign investors from having their investments expropriated — commandeered by foreign governments. This would obviously benefit foreign investors.
It would also benefit people in countries whose governments would otherwise expropriate because investors would be more likely to invest in such countries and foster growth.
Another upside is that intellectual property would get more protection. New drugs that contain a biologic, for example, would be protected.That would likely lead to more innovation in biologics.
Jason Furman, the chairman of the Council of Economic Advisers under President Obama, estimated that the TPP, after being fully implemented, would create $77 billion in annual benefits for the United States.
That’s in 2007 dollars. In 2017 dollars, that amounts to $89 billion, which is almost half a percent of GDP — that’s big.
What are the downsides? One can reasonably make the case that intellectual property in the United States, especially on copyrighted products, would get too much protection.
Unfortunately, the TPP mimics U.S. law by granting copyright for the duration of the life of the author plus 70 years.
That seems excessive, and it explains, for example, why Mickey Mouse, produced by Walt Disney 89 years ago, still has copyright protection. The TPP also, just like U.S. law, treats copyright infringement as a crime.
On labor, the TPP is troublesome. Here’s how the U.S. Trade Representative, under President Obama, put it:
“TPP puts strong, fully-enforceable labor and environmental provisions at the core of the agreement. They will be the strongest labor and environmental provisions ever included in a trade agreement, and they mark a sea-change from earlier trade agreements like NAFTA.”
There’s the rub — signatory states would have to guarantee “acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”
What is “acceptable?” We don’t know, but the worrisome possibility is that the governments of richer signatories would get to dictate terms, cutting off economic opportunity for the poorer signers, like Vietnam.
Part of what makes trade so beneficial for both sides is that it gives each side the opportunity to specialize in the goods for which it has a lower cost.
Vietnam’s cost advantage is based on cheap labor, albeit coupled with low productivity. Raise that cost of labor and it hurts Vietnamese workers and U.S. consumers.
The downsides are probably less important than the upsides. Why do I say that? Because if they weren’t, U.S. labor unions wouldn’t be so down on the TPP.
As a two-armed economist, I’ll say that the benefits of the TPP are uncertain. Chop off one of my arms and I’ll say that the net benefits are positive.
David R. Henderson is a research fellow with Stanford University’s Hoover Institution and an economics professor at the Naval Postgraduate School in Monterey. He was previously a senior economist with President Reagan’s Council of Economic Advisers. He blogs at www.econlog.econlib.org.
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