Trade pacts are a tonic for the economy

A new debate is emerging regarding the economic impact of the Trans-Pacific Partnership (TPP) and trade promotion authority (TPA) -- that is, presidential "fast-track" power -- on middle and lower income Americans.  Opponents have argued that these trade measures will only exacerbate our country’s growing income inequality. They assert, therefore, that the president must be forced to choose between these two critical administration priorities.

But it is a false choice.

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Inequality reflects a number of factors, including technological advancements that have increased productivity.  The reality is that little of this has to do with trade agreements. 

That’s because the United States already has one of the most open economies in the world.  Our average tariffs on foreign goods are around 3.5 percent.  We have few non-tariff barriers, and we don’t use our regulatory processes to discriminate against foreigners.  That’s not the case for the vast majority of countries.

With 95 percent of the world’s consumers and 80 percent of the world’s purchasing power outside the United States, the most important step we can take to address income inequality is to make sure our workers have the right and the ability to compete on a level playing field for the best, high-paying jobs in the world. 

To do so, we need to open markets abroad and increase our exports. Doing so helps grow export-related jobs that pay 13-18 percent more than non-export-related jobs, helping bridge our growing income gap.  If we do trade right, the United States can become a magnet for investment and for manufacturing to create jobs and drive up wages. 

As we mark 20 years of deeper economic integration with Canada and Mexico, many cite NAFTA as the most compelling proof that open trade exacerbates inequality and chronic job loss.  When you hear numbers thrown around about the impact of NAFTA or trade, it’s important to dig a little deeper and look at what’s really going on in our trading relationships.

Mexico and Canada import more “Made in America” goods and services than any other countries in the world. Our neighbors account for nearly one third of our exports – half a trillion dollars a year in goods alone and an additional $88.6 billion in services – supporting millions of American jobs. 

The driver of our trade deficitsnwith Canada and Mexico has long been fossil fuels. When you take out energy, we’re actually running a trade surplus with NAFTA countries – where the United States exports more than it imports. 

Since 1994, our manufacturing exports to Canada and Mexico are up 258 percent.  In 2012, we had a $20.9 billion trade surplus in manufactured products with Canada and Mexico.  We’ve doubled exports on things like clothing and textiles. We’ve tripled it in things like computers and electronics products. A recent study by the National Association of Manufacturers found that NAFTA was instrumental to the 76 percent growth experienced in American value-added manufacturing since 1993. 

Our agriculture exports to Canada have increased fourfold since 1994 and our exports to Mexico have increased fivefold – totaling nearly $40 billion a year.  We have a $43.6 billion surplus in the export of services with the NAFTA countries.

More open trade with Mexico and Canada has been particularly good for American small businesses,whose first foreign customers are most often in our closest neighbors.  More than 130,000 small businesses in the United States export to Canada (91,811) and Mexico (50,826 ).  More than half of the value of goods imported from Canada and Mexico is U.S. content – components that were “Made in America.”  

This is not to say there are no lessons to be learned from NAFTA. In the intervening years, the U.S. economy and the global economy have changed a great deal and we’ve learned a lot about what needs to be done better.   When it was negotiated labor and environmental provisions were not part of the core NAFTA agreement. They were in two side agreements and not strongly enforceable.

When then-Sen. Obama (D-Ill.) ran for president, he pledged that if elected he would work with Canada and Mexico to renegotiate NAFTA to elevate labor and environmental provisions to be part of the core agreement.

That is exactly what the president is doing through TPP – by insisting that the labor and environmental provisions to which Canada and Mexico (as well as all of our TPP negotiating partners) agree be subject to dispute settlement with trade sanctions.

TPP is also important strategically.  Without American leadership, we will be leaving it to countries like China to set the agenda.  In fact, China is negotiating a competitor to TPP that includes 16 Asia-Pacific countries, called the Regional Comprehensive Economic Partnership or RCEP. It doesn’t nearly do what TPP does in terms of raising labor and environmental standards. Nor does it provide adequate protection of intellectual property or ensure access to medicines while encouraging innovative pharmaceutical manufacturers to bring life-saving drugs to market.

TPP is also taking on new issues that our companies and workers increasingly face like restrictions on the free flow of information in this technological age.  Issues like this will go unaddressed if we don’t take them on in TPP.

In short, the decision isn’t trade or no trade.  It’s trade under our rules, where we try to level the playing field – or it’s more races to the bottom that we cannot win and should not run.

Both political parties have acknowledged the urgent need to address income inequality in our country.  Trade promotion authority and the Trans-Pacific Partnership offer two compelling bi-partisan opportunities to do just that.

 

Daschle served South Dakota in the U.S. Senate from 1987 to 2005. He was Senate Majority Leader from 2001 to 2003 and is currently a senior policy adviser at DLA Piper, LLP, a global law firm with corporate clients in the Americas, Asia Pacific, Europe and the Middle East.

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