The Trans-Pacific Partnership (TPP) trade agreement is being portrayed as a boon for all 12 of the countries involved. However, opposition to the agreement might be the only issue that the remaining US presidential candidates can agree on and Canada’s trade minister has expressed serious reservations about it. Are the TPP’s critics being unreasonable?
In a word, no. The TPP might help the US advance its goal of containing China’s influence in the Asia-Pacific region, exemplified in US President Barack Obama’s declaration that “with TPP, China does not set the rules in that region; we do.”
However, the economic case is not nearly as strong. Although the TPP would bring some benefits, they would mainly accrue to large corporations and come at the expense of ordinary people.
In terms of gains, one US government study on the topic projected that, by 2025, the TPP would augment its member countries’ GDP growth by a meager 0.1 percent at most. More recently, the US International Trade Commission (ITC) estimated that, by 2032, the TPP would increase the US’ economic growth by 0.15 percent (US$42.7 billion) and boost incomes by 0.23 percent (US$57.3 billion).
However, TPP advocates have largely ignored the results, preferring to cite two studies by the Peterson Institute of International Economics, a well-known cheerleader for economic globalization.
In 2012, the institute claimed that the TPP would boost total GDP in member countries by 0.4 percent after 10 years. In January, it declared that TPP would augment total GDP by 0.5 percent over the next 15 years.
In a World Bank study released the same month, the authors of the institute’s research projected a 1.1 percent average increase in GDP in TPP member countries by 2030.
Something is clearly amiss.
A closer look reveals that the studies’ findings concerning the TPP’s purported benefits lack supporting economic theory, credible modeling and empirical evidence. The only advantages presented that are consistent with mainstream research methodology are tariff-related trade benefits.
However, if the institute’s authors had used conventional methods to estimate total gains from trade, such benefits would comprise a very small share of the alleged gains from the TPP.
According to the instittute and the World Bank, about 85 percent of overall growth from the TPP is due to “non-trade measures” and related foreign investments.
Meanwhile, the studies ignore employment and income distribution — where some of the leading risks of trade liberalization lie.
Instead, they simply assume that all countries are at full employment and have consistent income distribution, trade balance, and fiscal position.
The ITC study, which used a slightly different model, predicts an increase in the trade deficit that would destroy 129,484 US jobs (yet, inexplicably, it estimates that the TPP would raise employment by 128,000 jobs).
It also projects a net increase of US$25.2 billion in exports by 2032 (in 2032 US dollars), a small fraction of the institute’s projection of US$357 billion in 2030 (in last year’s US dollars).
For our study, my colleagues and I used the institute’s 2012 estimates of trade-related gains, despite our reservations, along with more realistic economic specifications, including for income distribution and employment.
We projected downward wage pressure, which, by depressing domestic demand, would lead to lower employment and higher inequality in all country groupings. Projected job losses would total about 771,000 across the TPP countries, including 448,000 in the US alone. These losses would offset any growth benefits, with the US and Japan suffering small net income losses (minus-0.5 percent and minus-0.1 percent, respectively).
Even if the TPP is found to conflict with the national or public interest, participating countries are obliged to follow its provisions.
Despite being portrayed as a trade deal, the TPP is not even really about trade. Many TPP countries are already among the world’s most open economies, with most merchandise trade among them having already been liberalized by earlier agreements and unilateral initiatives.
Instead, the TPP’s most important provisions strengthen, broaden and extend intellectual property rights. That will give pharmaceutical companies much longer monopolies on patented medicines and keep cheaper options — both generics and alternatives that are deemed too similar — off the market, hurting both consumers and governments that provide subsidies.
Moreover, the TPP weakens national regulation, such as over financial services, and strengthens the rights of foreign investors at the expense of local businesses and the public interest. Investor-state dispute settlement (ISDS) provisions allow foreign investors to pursue binding private arbitration against governments if new regulations reduce their expected future profits.
Governments that lose the lawsuits will be obliged to compensate foreign investors; but even those that win would incur high legal costs. Potential ISDS compensation payments or settlements alone could far outweigh the TPP’s limited economic benefits.
Finally, although the TPP’s biggest impact would lie outside the trade realm, the agreement has been used to undermine multilateral trade liberalization efforts. The most obvious victim has been the WTO’s ongoing Doha Development Round negotiations, but APEC and ASEAN would also suffer.
The TPP’s advocates have, for years, been grossly exaggerating the deal’s projected benefits, while downplaying its potentially high risks and costs, most of which would be incurred by ordinary people. The reality is that the TPP would have a barely perceptible impact on GDP, benefit large corporations almost exclusively and significantly constrain the policy space governments need to accelerate economic development and protect the public interest. Some partnership that is.
Jomo Kwame Sundaram is a former assistant secretary-general for economic development in the UN Department of Economic and Social Affairs and received the 2007 Wassily Leontief Prize for advancing the frontiers of economic thought.
Copyright: Project Syndicate
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