Don’t let politicians end free trade

Doug Bandow

Trade is good for America. We benefit from purchasing inexpensive products and services from abroad as well as selling their own wares around the globe. We all will suffer if politicians successfully scapegoat trade.

One of the most important proposed trade agreements is the Trans-Pacific Partnership, an accord among nations possessing 40 percent of the world’s GDP.

Like most “free trade agreements,” TPP offers freer rather than free trade. Nevertheless, the pact eliminates some 18,000 tariffs, reduces non-tariff barriers, and streamlines customs procedures. The U.S., which already has relatively low tariffs and non-tariff restrictions, would benefit from leveling the proverbial playing field.

Predicting the consequences of such an agreement isn’t easy. In January, the World Bank reported that earlier studies assessing figured a .8 to 1.8 percent GDP increase for member states.

The Bank’s own estimate was that the agreement would expand trade by 11 percent through 2030. GDP would rise an average of 1.1 percent for member states. Explained the Bank: “The benefits are likely to materialize slowly but should accelerate towards the end of the projection period.”

Also in January, economists Peter Petri and Michael Plummer of Brandeis and Johns Hopkins, respectively, figured TPP would result in a 9.1 percent increase in exports through 2030. Overall, there would be a .5 percent GDP increase.

Perhaps 54,000 jobs a year would be affected, both lost and added. Despite this increased “job churn,” the two economists wrote, “labor will get a somewhat more than proportionate share of the gains” compared to capital. Overall, Petri and Plummer argued: “The benefits of the TPP to the U.S. economy will greatly outweigh adjustment costs, and that economy wide price and employment consequences will be limited.”

Free trade encourages people and capital to shift to more productive industries wherever located. Past agreements have generally benefited participating countries. According to the Bank, NAFTA hiked GDP by 1 to 2 percent. The European Single Market, long ago predecessor to the EU, added 2 to 3 percent of GDP.

These benefits are evident in the U.S. One study figured that exports accounted for about one-third of America’s economic growth from 2009 through 2014. Almost 12 million jobs are directly attributable to exports. On average, these jobs pay as much as one-fifth more than other employment.

Moreover, Americans benefit from low-cost imports. A study by economists Pablo Fajgelbaum and Amit Khandelwal of UCLA and Columbia, respectively, found “a pro-poor bias of trade.” An analysis by economists Christian Broda and John Romalis, both of the University of Chicago, noted that “International trade with developing countries is an increasingly important source of inexpensive products sold to consumers.”

Ratifying TPP also would offer important political advantages. Although China will continue to dominate trade in its own neighborhood, TPP would ensure that commerce continues to draw friendly states toward America.

Even before Donald Trump seemed headed toward the Republican Party presidential nomination, TPP’s prospects were uncertain. Unfortunately, if left to a future administration TPP might never be ratified.

Every day Congress refuses to liberalize trade is another day of losses for U.S. consumers and producers. Petri and Plummer figured that “Delaying the launch of the TPP by even one year would represent a $77 billion permanent loss, or opportunity cost, to the U.S. economy as well as create other risks.”

America needs political leaders with the courage to act. Unfortunately, none of the remaining presidential candidates appear prepared to lead America toward a better and more prosperous future.

Doug Bandow is a senior fellow at the Cato Institute.