Trade agreements are controversial. The widespread benefits of free trade across large populations are indisputable, but the implementation always takes a few hostages. Trade between countries without tariffs, quotas, and regulation helps to expand economies worldwide, enables countries to sell their products overseas more freely, and promotes more competition, which lowers prices and encourages innovation. Another indirect advantage is that countries that are economically strong are usually more politically stable.
But if I'm running a shoe factory within the U.S., and a new trade agreement allows Vietnam to export footwear into America without quotas or tariffs, I'm in trouble because Vietnam's wages are even lower than China's, and shoes are relatively labor intensive to make. Actually, that's not a good example because 98 percent of shoes we buy are already made overseas, so my business probably would have been long gone by now.
The Trans Pacific Partnership trade agreement will offer the same benefits to the overall economy and result in some of the same losses to the American manufacturing sector. Barriers will fall, new markets will open, trade will increase, America will create jobs by exporting more, and America will lose jobs due to lower labor costs overseas. We'll import more from other countries, and goods will ultimately cost less.
The TPP, which has been in the works since before 2008, would create the largest free trade zone in the world. The twelve Pacific Rim countries that are included make up about 40 percent of the world's GDP. On Oct. 5, those countries' trade representatives agreed to the final wording, so it's now ready to be taken back to the countries' respective governments for approval, which could take another couple of years. Like all trade agreements, negotiations were held in secret, so as not to derail it even before its completion, so a common rebuttal to its critics is that they haven't seen it yet in its entirety. That may be true, but enough of it has been shared or leaked to have people expressing their negative opinions.
Trade agreements aren't just about eliminating tariffs and duties anymore. They address patents and copyrights, dispute settlement protocol, opening the internet in restrictive countries, promoting green technologies, and more. The U.S. already has 20 bilateral trade agreements with assorted countries within the TPP, not including NAFTA and the TTIP with the European Union. All three NAFTA countries (the U.S., Canada, and Mexico) have signed onto the TPP. The effects of a new agreement are purposely gradual; some tariffs are allowed 25 years to phase out.
According to the U.S. Trade Representative office, the TPP would eliminate more than 18,000 tariffs that exist on American exports, including automobiles, machinery, electronics and software, a variety of industrial and consumer goods, and agricultural products. It bans child labor and sets minimum wages, sets environmental standards, enforces against illegal logging and protects overfishing and trafficking of endangered wildlife. Many of these policies would help to level the playing field that has benefitted the countries that have much less concern about working conditions, deforestation, and polluting the oceans and skies.
Those against the TPP have an arsenal of complaints to make their case. While the media photo op shows 12 distinguished representatives politely sitting around a conference table, there were over 600 corporate "advisors" that helped shape the agreement. Obviously an accord of this importance and magnitude could not be created without a small army of industry experts, economists, and attorneys, but many feel that this partnership "is less about trade than about corporate-dominated globalization," and that lawyers and lobbyists included too many provisions to protect the profits of corporations and their investors. Notably, the pharmaceutical industry has been singled out for protecting and extending their patent rights, which will make life-saving drugs more expensive worldwide. There is also concern about whether there are sufficient safeguards against countries that might manipulate their currencies to gain trade advantage. And nearly everyone believes that the United States will lose more manufacturing jobs, and wage stagnation will continue.
It's been over 20 years since NAFTA was ratified. Analysts estimate that trade between the three partners grew by about 150 percent directly due to the agreement, and about 600,000 American jobs were lost, most of them higher paying manufacturing jobs. Most supporters of NAFTA believed that trade would have increased by much more, but many detractors thought the job losses would have been much higher. Ross Perot's "giant sucking sound" never really materialized the way many feared it would.
There's not much reason to believe that the long term results of the Trans Pacific Partnership will be any different. Trade between the member countries will increase, and a share of the U.S. manufacturing sector will gradually move to countries that have a comparative advantage due to lower wages. And we probably won't be reading about a shoe factory opening up stateside anytime soon.
I'm pro free trade, provided it's truly free. When the full text of the TPP is released, a comprehensive assessment can be provided by those on both sides, and we'll better understand its full impact. From the limited information I've been able to gather, I'm cautiously in favor of the agreement, anticipating that the good that will come from it will outweigh the bad.
Curtis Williams has been in manufacturing management and operations for over 25 years. Contact him at email@example.com.