WASHINGTON — Bernie Sanders’ big win in Michigan emphasized just how important international trade is in the presidential campaign.
While the Trans-Pacific Partnership awaits ratification in Congress, Sanders is campaigning on his opposition to the deal and the job losses that he believes will result. His opponent, Democratic frontrunner Hillary Clinton, is trying to recover from her past support of the deal and of previous trade pacts.
Opponents of the TPP argue that it will lead to sending U.S. jobs overseas, increased corporate control of trade, and high price markups on generic medication. That’s for starters.
But Sanders used the same anti-free trade message Tuesday in Ohio and Illinois – industrial states with similarities to Michigan — and Clinton won both. So, the issue is far from foolproof for him going forward.
But back to the TPP itself. What else is the TPP agreement expected to do?
The Trans-Pacific Partnership is a free-trade agreement among the United States and 11 other countries in the Pacific. From an American perspective, it is designed to increase the global circulation of U.S. goods.
But the agreement isn’t only expected to benefit the United States. Anabel Gonzalez, senior director of the World Bank Group global practice on trade and competitiveness, said research shows the TPP is good news for all of the member countries’ economies.
“Our studies show that the TPP could lift the overall GDP (gross domestic product) of member countries by 1.1 percent by 2030,” Gonzalez said. “And the impact could be considerably more in countries such as Vietnam where it could raise the GDP by 10 percent, or Malaysia where it could raise GDP by 8 percent.”
On an even more global scale, Gonzalez said countries don’t necessarily need to be members of the agreement to feel its benefits.
“Overall I think we can expect TPP will stimulate global growth, will have spillovers that will benefit nonmembers, and will have demonstration effects that will also have a positive effect on nonmembers,” Gonzalez said.
Implementing the trade agreement sets a new global standard, she said, causing countries outside the TPP to improve their own practices both in order to compete as well as to improve their chances of being able to join the TPP themselves.
And America’s role in the agreement is a perk for the country, according to Cathleen Cimino-Isaacs, a research associate with the Peterson Institute for International Economics.
“There’s an effort to keep U.S. leadership relevant,” she said.
The TPP, with the U.S. in the lead, is redefining trade agreements and laying the foundation for future deals as well, according to Anabel Gonzalez. It not only establishes a free trade protocol, but also sets up responsible environmental practices and seeks to standardize copyright law, among other regulations.
“These regulations will possibly benchmark for future agreements because they haven’t been addressed for the most part in past agreements,” Cimino-Isaacs said.
One of the best-known of those past agreements was the North American Free Trade Agreement, which went into effect in 1994. NAFTA expanded trade with Canada and Mexico to with the goal of making U.S. manufacturers. It resulted in less severe job losses than critics predicted, but only increased the United States’ GDP “very slightly,” according to the Council on Foreign Relations.
Opponents of the TPP are referencing the job losses and modest GDP increase to support their position, but Cimino-Isaacs said the TPP is unlike what we have seen before.
The enterprising nature of the agreement combined with the fact that TPP members account for about 40 percent of the global economy means the deal has considerable influence, she said. As TPP markets form, markets in general will become more competitive and productive, Cimino-Isaacs said.
Gonzalez acknowledged, however, that the impact will definitely not all be all positive.
“With any trade agreement, and I think that this is probably particularly true of TPP, there are a couple of risks,” Gonzalez said.
In this case, Gonzalez said the main risks are preference erosion — countries outside of the TPP may see a decrease of exports in TPP markets, in favor of making those deals with TPP members. And she is concerned about “and exclusion” – as TPP supply networks come together, non-TPP countries will find it harder to incorporate themselves in those networks.
As to the prospect of U.S. jobs disappearing, Cimino-Isaacs has heard the arguments.
Once production barriers between countries are removed, manufacturers can relocate factories outside the U.S., so production is cheaper. Materials may be less expensive overseas and employers in some countries do not use unionized workers. The result is that the people, who used to work for manufacturers who move abroad, get laid off.
”My colleagues do find that the costs would be substantial for some workers,” Cimino-Isaacs said. “But overall these losses are a small fraction of the TPP’s overall benefits.”
But Public Citizen, a liberal advocacy group, says on its website, “Even with a conservative estimate of trade’s contribution to inequality, the losses from a projected TPP-produced increase in inequality would wipe out tiny projected gains from the deal for most U.S. workers. For anyone making less than $88,000 per year, the TPP would mean a pay cut.”
Cimino-Isaacs said the best course of action is to prepare for anticipated job losses and ensure there are systems in place for adjustment assistance for U.S. workers.
Overall, though, she said the negative impacts of the TPP should be vastly outweighed by the positive ones.
One of the biggest determinants of success will be the member countries’ willingness to allow more countries into the mix. Gonzalez said leaving the option for expanded membership open will incentivize other countries to improve their trade networks and economies.
“We have already begun to see a number of countries that are nonmembers of TPP indicating that on the one hand they’re interested in becoming members, but on the other hand they’ve also begun to make internal domestic reform,” Gonzalez said.
Adjustments in the deal may come down the road. “It remains important in time to see how the implementation of the provisions go and determine whether there will be a need to adjust or not,” Gonzalez said.
