TE before TPP
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The Problem

Like all other trade agreements, a central problem with the TPP (Trans Pacific Partnership) is its negative effects on the American jobs. The lower cost of production in many of these countries, than that in the U.S., would help American corporations increase their profits. It would also benefit American consumers buying foreign products at lower prices. However, American workers would continue to lose jobs.

American trade deficit is the primary reason for America losing millions of jobs every year. America currently owes about $5 trillion to foreign countries. It loses about three jobs per $1 million of net imports. As such, it has lost about 15 million jobs to the world over the years. With a trade deficit of about $500 billion in 2015, America lost about 1.5 million jobs in that year alone.

Many people are forced to accept part-time jobs and lower compensation. Millions of them have stopped looking for jobs. The gap between the rich and the poor continues to widen. Americans like the Britons may one day also ask for a referendum on their memberships in WTO, NAFTA, etc.

The Solution

Currently, the United States is negotiating the TPP with 11 other countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

America should join any trade agreement only after all parties have agreed to the principle of trade equilibrium with the U.S. TPP countries such as Japan and Mexico should use their surplus dollars to buy American products.

Trade equilibrium (Bhandari, JIBR 2014) is a situation when trading among different countries is such that the trading partners remain generally deficit-free from one another over a cycle of every 2-3 years. This theory has two major goals: (a) to stop exporting of additional American jobs, and (b) to regain the American jobs already exported by legally requiring the dollar/trade surplus countries to eliminate their surplus over a ten year period by buying American products (goods and services).

The trade agreements should preferably be bi-national, not multinational. Multinational trade agreements weaken American bargaining strength (America against several other countries). Bi-national agreements would strengthen American bargaining position. For example, if Vietnam wants to sell its products to America, it must also agree to spend the dollars it received from exports, to import American products. If it doesn’t agree to the condition, America should buy from other countries. It would be like developing alternative suppliers. Can an exporter to America afford to refuse such a deal?

America should aim to establish an overall trade equilibrium with the world as a whole. Foreign countries may also trade among themselves within these guidelines.

Questionable Solutions

Mrs. Clinton and Mr. Trump are offering the same mantras that their fellow politicians have delivered for years: Outsourcing is unavoidable, sue for trade and currency violations, repeal TPP, re-negotiate NAFTA, etc. Unfortunately, none of these solutions can work because the multinational trade agreements are based on individual self-interest and mutual distrust.

For example, a withdrawal from WTO would be a two-edged sword. On the one hand, it would save millions of American jobs from offshoring. But on the other hand, it would also cause millions of Americans employed in the imports related industries (retailing, etc.) lose their jobs. It would also force millions of consumers to pay more for the products made in America.

Benefits

If America passes the law of trade equilibrium, there would be no additional export of U.S. jobs; and no additional tax expenditures (unemployment payments, etc.) on the jobs lost. There would be net new purchases of $500 billion worth of American products by foreigners annually for ten years; and elimination of American foreign debt by 2026.

The absence of new trade deficit would save three American jobs per $1 million of such absence. And, the emergence of new trade surplus would create three American jobs per $1 million of such surplus. The foreigners can spend their dollars buying American equipment or visiting Disney Land. Both our manufacturing and service industries would revitalize.

With more jobs and higher incomes, Americans would spend more on American and foreign products. Foreigners in turn would use their dollars to buy more American products. The resultant geometric multiplication of free and fair trade between countries will give birth to the next economic revolution—effects of which would be larger than that of the industrial and the Internet revolutions. It would be a win-win phenomenon. It would increase demand for and supply of products, and investments, and jobs of all kinds.

These changes would increase workers' income, reduce poverty, enlarge the middle class, strengthen free enterprise, enhance corporate profits, raise tax revenues, and trim tax rates. They would eliminate foreign debt and reduce public debt. The Poor would get richer. The Rich would get richer.

Benefits to the World

Using their surplus dollars to buy American products would help foreign countries to improve their infrastructure and economy. They would also save themselves from sitting on dollars declining in value. It would promote employment, economic growth, and peace around the world.

Narendra C. Bhandari, Ph. D., is Professor of Management at Pace University, New York. His foundation article on his theory (“Trade Equilibrium: A Multi-Generational Economic Policy,”) was published in the Journal of International Business Research , Volume 13, Number 1, 2014, pp 91-104.


The views expressed by authors are their own and not the views of The Hill.