First Person: TPP Will Update the Rulebook for Trade
John Murphy, Sr. VP for International Policy at the U.S. Chamber of Commerce, recently explained to Area Development’s editor why trade agreements are important for the U.S. economy and discussed the negative consequences of a retreat on trade.
Murphy: U.S. trade agreements have brought tremendous benefits for American workers, farmers, and companies because they provide a level playing field for trade. The U.S. market is largely open to imports from around the world, but many other countries continue to raise steep tariffs and other barriers against U.S. exports. Trade agreements fix this imbalance.
While America’s 20 trade agreement partners represent just 6 percent of the world’s population outside the United States, they buy nearly half of all U.S. exports. In fact, the citizens of these 20 countries buy 13 times as many made-in-the-USA goods and services as other countries on a per capita basis. A Chamber study found the increased trade brought about by these trade agreements supports more than five million American jobs.
The U.S. even has a trade surplus with its trade agreement partner countries when it comes to manufactured goods — on top of our global trade surpluses in services and agricultural products. It should come as no surprise that eliminating tariffs and other trade barriers enables trade to expand — often turning small economies into major export markets.
Do trade agreements ultimately result in the loss of U.S. jobs, as their opponents say, or job creation and wage growth?
Murphy: Most economists believe the main effect of trade on jobs — particularly in a period like today, when the economy is said to be near “full employment” — is to alter gradually the mix of jobs available by creating more high-skill, high-wage jobs and fewer low-skill, low-wage jobs. There’s plenty of evidence that jobs tied to trade tend to pay better than those that are not. According to Commerce Department research, jobs tied to exports pay wages that average 18 percent higher than those that are not.
It’s a fact that trade sometimes brings disruption to businesses and the workforce, but it’s a relatively minor factor in job loss. One recent study found that 85 percent of all job losses in manufacturing in the past two decades were due to technological progress, not trade. And studies show the benefits of trade outweigh the costs by as much as 100 to 1.
But that doesn’t mean some Americans haven’t been left behind. Some workers are displaced by trade, and they should be helped. Our country needs to do a much better job with worker training and transition assistance, regardless of the causes of job loss. There are more than 40 federal programs in this area, but the Government Accountability Office says most of them don’t work.
Business needs to have a big role to play in securing progress in this area, and companies are already making a major contribution by investing in training and development across the U.S. workforce. The Association for Talent Development estimates that U.S. businesses spent $164 billion on employee learning and development in 2012, or about $1,200 per worker. The Chamber is launching an initiative to make recommendations to improve federal programs in these areas.
How do trade agreements affect national security?
Murphy: America’s Greatest Generation worked hard to tear down trade barriers because they knew the costs of protectionism. The disastrous Smoot-Hawley Tariff Act of 1930 triggered a 66 percent decline in world trade. This contributed powerfully to the Great Depression, which set the stage for war.
They vowed not to let history repeat itself. And for 70 years, trade agreements have fostered economic growth and good jobs, but they have also strengthened ties of peace, cooperation, and friendship between nations. The 40-fold increase in world trade over the past seven decades helped make America the most prosperous country ever, and it has also driven the dramatic decline in absolute poverty in developing countries, which last year fell below 10 percent for the first time.
Trade policy is strategically important because no country can afford a strong military without a strong economy. Indeed, America’s military leaders are quick to point out their preference for the “soft power” of trade and diplomacy over the “hard power” of military force: The former is a bargain compared to the latter — both in terms of treasure and of blood. This is why Defense Secretary Ash Carter has said that passing the TPP is as important to him as getting a new aircraft carrier.
Are there legitimate problems with TPP and other trade agreements that need to be fixed?
Murphy: After the agreement was concluded a year ago, some in the business community and Congress expressed concerns about some shortcomings in the agreement. For instance, the TPP’s important rules on digital commerce were written in a way that didn’t cover financial services. The administration has worked hard to correct this, with good results. Work is still ongoing to ensure the TPP protects the intellectual property that supports biologics, a novel class of life-saving medicines. We’re optimistic this can be accomplished.
What are the long-term implications of retreating from the global economy?
Murphy: On trade, when you stand still, you fall behind. Most of our trade pacts were negotiated long before the rise of the Internet and e-commerce, before the U.S. economy became so dependent on intellectual property, and before state-owned enterprises became major players in the global economy.
And so the TPP will update the rulebook for trade. It offers landmark provisions that will protect our creative, innovative, and research-based industries as well as our smaller firms that rely on new technologies and services to reach the 95 percent of the world’s consumers living outside the U.S.
But the world no longer waits on America. Today, China and other Asian economies are pressing ahead with a mega-agreement known as the Regional Comprehensive Economic Partnership (RCEP), encompassing all of Asia but shutting out the U.S.
RCEP may lack the TPP’s innovative protections for a free and open Internet, intellectual property, and fair competition with state enterprises, but it would guarantee preferential treatment to workers and companies on the inside — and leave Americans on the outside, looking in. If it moves forward and the TPP doesn’t, U.S. workers, farmers, and companies will be left behind. We can’t let that happen.
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