Explaining the Trans-Pacific Partnership Agreement

Explaining the Trans-Pacific Partnership Agreement

A Rutgers economist on why the agreement is controversial and why trade deals matter overall

Rutgers Election Watch 2016: This is the first in an occasional series examining hot topics in the 2016 presidential race

Protests agains the Trans Pacific Partnership at the Democratic National Convention 
In a presidential election year marked by unprecedented divisiveness, there is one issue that has galvanized voters on both the left and right: opposition the Trans-Pacific Partnership (TPP) trade deal. President Obama plans to make a final push to win congressional approval for the deal this fall –although many other Democrats oppose the pact. Rutgers Today spoke with Thomas Prusa, a professor of economics who also serves as a research associate at the National Bureau of Economic Research, about opposition to the TPP, and the benefits and drawbacks of trade deals in general.
 

Why does the United States enter into trade deals?

Prusa: The U.S. has participated agreements like TPP since the 1930s. History has repeatedly shown that more open trade benefits all countries. Trade agreements are a balancing act: We agree to lower trade barriers, including tariffs, and in return our trading partners lower their barriers.  The benefits from these agreements include the availability of a greater variety of goods; higher quality products; and, in some cases, lower cost products.  In addition, the U.S. benefits from greater access to foreign markets, especially in highly protected sectors like banking and service trade where the U.S. is clearly the world’s leading provider.

What are the benefits and drawbacks of trade deals?

Prusa: All Americans benefit from reduced trade barriers as we all are consumers. This fact is often overlooked in policy debates. The breadth and quality of goods available today, many of which are foreign sourced, is incredible. Most of the discussion of winners and losers has focused on the production side. Broadly speaking, low-skilled workers have fared poorly over the last three decades and part of the reason is competition from low-wage countries. Nevertheless, there are countless studies that have shown that trade deals are good for the country overall. The more relevant question is the distribution of the gains. The sense among many Americans is that the gains accrue to a small powerful group of people, the so-called 1-percenters, while the costs are borne by the rest of us.

What is the Trans-Pacific Partnership (TPP) and why has it stirred up so much opposition? Did past deals face the same level of opposition?

Prusa: The TPP is a trade deal involving 11 Pacific Rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam) and the United States.  While here in the U.S. we hear how bad the TPP is, similar statements are being made in most of the other TPP countries which feel the U.S. is getting the lion’s share of the benefits. TPP is controversial because of the cumulative effect of several decades of wage stagnation for manufacturing workers and the sense that labor’s decline is due to trade. It is always easier to blame foreign competitors for an industry’s troubles than to consider mistakes we have made. All trade negotiations conducted over the last three decades have been highly controversial. Ross Perot ran for President in 1992 on platform mainly centered on stopping NAFTA.  He received almost 19 percent of the votes cast. More recently, there were large protests (some might call them riots) in Seattle in 1999 over the mere thought of new trade negotiations.  

Critics blame past trade deals for significant job loss and factory closings. Is this a fair assessment or are there other factors that have contributed to the loss of manufacturing jobs?

Rutgers Economist Thomas Prusa
Prusa: Job loss and factory closings are visible signs of economic change. No one should trivialize the pain and hardship suffered by the workers and communities when this occurs. Yet, to blame trade agreements for these closings is grossly simplistic. Changes in computer and communication technology, dramatic decreases in the cost of transportation, and a variety of other government policies (e.g., tax policy) have changed our economy and those of our partners. To pretend any trade agreement negotiated over the last three decades would have altered the pace of change is disingenuous. Recent studies suggest that import competition is the root cause for about 25 percent of the decline in low-skilled worker wages. The rest is due to other factors.

Can we do a better deal in protecting workers in new trade deals? Do you foresee a change in how the U.S. negotiates such deals going forward?

Prusa: Absolutely we can do better.  But, my belief is that the real failure to protect workers is not found in the trade agreements, but rather in the failure of the government to provide meaningful trade adjustment assistance and retraining. If workers in Ohio feel they have been shortchanged, they need to ask why Congress refuses to fund job training and skill-building. If workers in Pennsylvania feel their pensions have been devastated, they must demand Congress to pass regulations that stop companies from under funding their commitments. These failures have long been documented and could have been lessened (or prevented) were Congress less dysfunctional. Going forward, if TPP fails, our trading partners will be reluctant to include us in trade deals. It’s not like the U.S. not ratifying TPP will stop other countries from continuing to make trade deals. The difference is that the U.S. will be viewed as an unreliable partner.  

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-Andrea Alexander


For press inquiries contact Andrea Alexander at aalexander@ucm.rutgers.edu or 848-932-0556