Economy & Budget

The decision to exit TPP puts America back to square one

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Even an informed voter could have easily missed that Donald Trump, Hillary Clinton, Bernie Sanders, and Jill Stein agreed on one issue. On the campaign Sanders said the most ambitious multilateral trade deal in history, the Trans-Pacific Partnership (TPP), would “undermine democracy,” while Stein said it would “steal American sovereignty.” Trump went as far to say that TPP would “rape our country.”

This week, President Trump’s executive order mandating withdrawal from TPP ensures the United States will not be a signatory. This stance echoes the rise of opposition to free trade and globalization, from calls of eliminating the North American Free Trade Agreement (NAFTA) to nations exiting, or seeking to exit, the European Union.

{mosads}Politicians’ views may change frequently, but fortunately economic theory does not shift with popular opinion. Economists agree that free trade is beneficial. Before Sanders declared, “You do not need a Ph.D. in economics to understand that our trade agreements have failed,” he should have consulted a few economists.

 

When a panel of economists from across the political spectrum was asked whether on average, Americans are better off with NAFTA than they would be without it, an astonishing 95 percent agreed, with the remaining 5 percent uncertain. On the effects of free trade in general, economists hold similar consensus. Free trade is a good thing.

TPP would have almost certainly increased the gross domestic product (GDP) of the countries involved. Despite Trump’s irascible, defiant beliefs to the contrary, America does not have to lose for another country to win. International trade is not a zero-sum game. A look at an introductory economics textbook will show as much. Two parties can both benefit from an exchange of goods and services.

Over the last century, trade has risen to unprecedented levels, and the world has become richer. An astonishing 700 million people were lifted out of poverty over the last 20 years. While free trade is neither the sole nor main cause of this singular achievement, it is unthinkable that this explosion of growth was done in spite of, rather than because of, lower trade barriers.

Contrary to protectionist claims that only the wealthy would accrue gains, exporting firms pay more than firms that only sell domestically. Poor consumers, who spend a larger percentage of their incomes on goods than the wealthy, also benefit from lower prices.

Detractors claimed that the TPP would “destroy lives and livelihoods” and is part of a “neoliberal assault against the working class.” This stems from the valid complaint that any free trade deal will have losers. Trade barriers shield domestic industry from competition, so coddled industries will suffer when these barriers are lowered. Some of the losers from the TPP include Japanese agriculture and American pharmaceuticals (an industry usually not known for its affinity with the left). For every member of society not part of those targeted industries, however, prices will fall, and the benefits outweigh the costs.

The United States is a perfect illustration of this. There are 50 states with different environmental rules, government subsidies, minimum wages, and business climates. These disparities at the international level lead to pitchfork driven calls for “fair trade” agreements and a “level playing field.” Yet in the United States, no serious politician argues for interstate trade barriers.

Imagine an America with tariffs between states. Shipping Vermont maple syrup to Georgia means stopping every hundred miles to pay customs duties. Each state moves to protect favored industry. Rent-seeking and graft becomes rampant. Perhaps some steel factories return to Ohio, but overall prices rise, and America becomes substantially poorer. Fortunately, the framers of the Constitution realized that although maple syrup could be produced in Georgia and peaches could be grown in Vermont, both Vermonters and Georgians would gain most from specialization and trade.

Was the TPP a perfect bill? No. Some of the rules within the TPP were probably harmful to America. But as developed economies continue to shift towards services, international rules will need to be developed to facilitate exchanges across nations. It will take decades, if not longer, to determine optimal trading rules with respect to intellectual property, patents, and the environment.

America’s withdrawal from the TPP not only leaves us at square one, but diminishes our capacity to be a leader in future trade negotiations on the world stage.

Patrick Gourley, Ph.D., is an assistant professor of economics at the University of New Haven in Connecticut.


The views of contributors are their own and are not the views of The Hill.

Tags Bernie Sanders Donald Trump Donald Trump economy Globalization Hillary Clinton Jobs Trade Trans-Pacific Partnership

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