America: Don’t give up on the Trans-Pacific Partnership (TPP)

Look before you leap away from TPP

My fellow Americans, this is for you. Before the American people get all happy about the demise of the Trans-Pacific Partnership (TPP), I think you should look at it. I have studied it pretty carefully and read several hundred pages, skimming other bits and examined the economic literature on it. I have a couple of my own peer-reviewed studies on it. And here is what I see…

A high standards agreement

TPP is a high standards agreement that levels the playing field for American workers and businesses in a number of ways. It has a chapter to ensure enforceable (!) worker rights based on high international standards. TPP’s chapter on protection of the environment includes action-oriented provisions and also requires protection against trade in endangered species. TPP protects the free flow of data and openness of the internet with respect to trade including e-commerce. It makes clear the rights to fair use of copyright protected materials to keep information free for education or research purposes. The agreement improves protection for business confidential information. It keeps digital trade free from duties. And, a side agreement addresses concerns about currency manipulation.

A diverse group of reform-minded trade partners

The TPP agreement covers the US and 11 partners around the Pacific Basin, based on such high standards. It creates an alternative model for trade that prevents beggar-thy-neighbour policies and averages standards upwards. It covers developing countries like Vietnam, Malaysia, or Peru, and offers them a chance to play by US and free and fair market rules rather than taking a race-to-the-bottom approach. Even among the developed countries like Canada, Japan, Singapore, Australia and New Zealand, as well as countries like Brunei, Chile and Mexico, it better aligns standards and regulations with those of the US. These countries have reached out and committed to an open, high standards relationship with America.

TPP is a win-win scenario

If we throw the TPP out the window, we will jettison at least a few percent of US economic growth (probably more than that over time). But, worse, we will leave the Pacific partners with few options but to look for another approach. And that means a less favourable world for all 12 countries, with a less level playing field for America. And, one thing we have learned from our history is that isolationist policies and pure nationalism do not protect us. Rather they leave us worse off and with fewer resources to look after ourselves. Why should we turn down this win-win TPP trade agreement, settling for a less prosperous future and a world turned away from the United States? That is not in our own interest, folks. (Nor that of our trade partners).

Take a look and get the facts before rejecting the TPP!

Hanoi traffic

Hanoi traffic: Will it be with us or will we veer  off the TPP road?

International Trade and Jobs – A Good Partnership

Economists generally agree that free trade is a good thing for the economy. It provides producers with access to global markets (and therefore potential to become more efficient by specialising and seeking economies of scale in their operations). It provide consumers with greater choice, including access to new types of products and new varieties of existing product types. It increases competition, which spurs innovation and productivity increases and limits growth in prices. In addition, market openness can provide access to world-class imported inputs, which in turn can improve the economic performance — including export performance — of domestic industries.

But, trade has taken a few hits in recent years, as it is sometimes viewed mainly as a source of economic disruption. Spurred by trade, economies adjust and that may mean that some folks in import-competing sectors may face economic hardship as a result. At the same time, such adjustment can be a good thing, promoting a better deployment and use of resources (hence rising productivity, which helps enable wages to rise). Here, there is a role for government to ensure the right conditions exist for business and workers to capitalise on the new economic opportunities arising from trade. In other words, for market openness to deliver the expected benefits, complementary policies are required.

For workers, this means government has a role in providing a social safety net to ensure that those facing adjustment can get the assistance they may require to find a new job, get training they may need to adapt, and get income during the adjustment period. For business, this means government policies to promote infrastructure development, keep the overall economic framework sound (e.g., avoiding undue inflation), limit red tape, and maintain sensible regulation, as well as provide a supply of labour with appropriate skills. And, to tie it all together, there is a need for clear rules of the game and standards for business and labour, as well as channels for frank and open discussion and social dialogue.

This is not just abstract theory. A new and substantial round of work by the OECD and other international organisations has looked at how some of these processes operate in the real world. The findings document the benefits of market openness and the importance of the complementary policies. Above all, experience demonstrates that protectionism is not the answer to the challenges of free trade. The economy as a whole is made much better off through a strategy to promote free trade while addressing the challenges that such a policy will entail.

You can find out more via the OECD website:

1) Trade, Growth and Jobs (in a nutshell, 4 pages)

2) Policy Priorities for International Trade and Jobs (the full story, 450 pages)