For the U.S., how big a deal is TPP, really?
Economically, maybe meh
Former pro-trade deal Hillary Clinton doesn’t even want to see a vote on the Trans-Pacific Partnership this year, according to today’s Wall Street Journal. Neither does her running mate, former pro-trade deal Sen. Tim Kaine, which appears to put both of them at odds with President Obama, who saw TPP as central to his “pivot to Asia.”
Wages, or the lack of decent wage increases, is their main objection. “I want to make sure that I can look into the eyes of any middle-class American and say, ‘this will help raise your wages.’ And I concluded I could not,” Clinton said last October.
That prompted me to look into an analysis put out by the Obama administration five months earlier of TPP’s potential effect on wages and employment. Verdict: it does very little — a less than 0.2 percent increase in real wages over a 15-year period. It doesn’t do much for employment either — a net increase of 128,000 FTE’s — and has a negative effect on the already hard-hit manufacturing sector.
“Liberalization would have a stronger positive effect in other sectors of the economy, which would likely cause resources to be reallocated away from MNRE,” says the U.S. International Trade Commission report, Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors.
What might happen in the short run, the report doesn’t say. More generally, the report sees agriculture and food as being the big domestic winner. The biggest overall winner will be “countries with which the United States does not already have a free trade agreement (FTA) in force: Brunei, Japan, Malaysia, New Zealand, and Vietnam.” The report notes that three of those countries — Brunei, Malaysia and Vietnam — signed side-deals with the U.S. to improve labor standards, but also notes that “labor unions and other observers have expressed the belief that the TPP labor provisions are inadequate and unlikely to be enforced, and thus would do little to improve labor conditions in TPP parties.”
The report does not address the potential costs of unemployment, nor of “employment transition” attributable to TPP, except to note that “recent research finds that this transition to the longer-term stage could take more time than previously believed.” That’s a reference to a February 2016 paper, The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade, by MIT economist David Autor and two other economists. Drawing on the impact of China’s accession to the WTO and other global agreements, their paper concludes:
“Labor-market adjustment to trade shocks is stunningly slow, with local labor-force participation rates remaining depressed and local unemployment rates remaining elevated for a full decade or more after a shock commences …
“Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists. Developing effective tools for managing and mitigating the costs of trade adjustment should be high on the agenda for policymakers and applied economists.”