Reposted from the AFL-CIO blog
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Have You Heard of the TPP Yet? An Important Trade Agreement You Need to Know About
Celeste Drake | March 11, 2013 | AFL CIO Blog
The U.S. government is currently working with 10 other countries to negotiate the biggest trade and investment agreement (also known as a “free trade agreement” or FTA) in history. It is called the TPP, or Trans-Pacific Partnership. Not only will it be bigger than NAFTA (the North American Free Trade Agreement)—it’s actually NAFTA plus eight other countries.
But the mainstream press doesn’t talk about the TPP much. Have you read about in in your local paper? Heard it mentioned on the evening news or on news talk radio? Perhaps on the Sunday morning talk shows?
I have a feeling that most of you are shaking your heads, shrugging your shoulders or making faces—becausethe answer is most likely “no.” Most people simply have not heard of the TPP, nor do they know that it might be the last trade agreement the United States ever negotiates (unlike past agreements, this one will be open to new countries, whenever they want to join). So it is all the more important to get this one right.
Why isn’t the press talking about this trade agreement? It’s certainly not because trade is boring or irrelevant, and it is definitely not because the debate is over.
Trade is relevant. The U.S. trade deficit, which has grown from a little more than $70 billion in 1993, the year before NAFTA went into effect, to nearly $540 billion today, costs us jobs. Trade deficits represent lost opportunities. The bigger the trade deficit, the more jobs we could have created in the United States but didn’t. Moreover, trade agreements affect our domestic laws. Once we enter into a trade agreement, it’s not so easy to raise tariffs on trading partners that engage in egregious human rights violations—nor is it easy to exit the agreement once we find out it is bad for our economy and our job creation.
Trade also is interesting. Trade rules affect your rights in the workplace, the safety of the food you eat and how clean your water is. Trade rules can affect whether tuna canneries are allowed to tell you if your tuna is dolphin-safe or whether local grocery stores have to label the hamburger you buy with its country of origin. Trade rules can affect the price of the fancy imported cheese you like or how much North American content must be in an automobile for it to qualify for the tariff benefits of NAFTA. And trade rules also can make it easier for an employer to shut down a factory, call center or legal support office and move it overseas. Trade is anything but boring.
And the debate is certainly not over. The proposed TPP is not yet finished—the rules are still being written. Will those rules largely mimic the rules that have helped kill off nearly 6 million manufacturing jobs in the United States in just over a decade? On the other hand, will the rules help make it easier for our brothers and sisters overseas to organize and act collectively to improve their wages and working conditions? Will the rules require our trading partners to protect endangered species? Or will they make it easier for giant global corporations to attack laws banning toxic chemicals? We don’t know the answer to these questions yet—because the deal isn’t done. But if the loudest voices the administration and Congress hear belong to the global corporations who have benefited from past agreements, I can predict what the answers will be. And they won’t be answers we like. If you have not yet spoken up to tell President Obama that America can’t take another NAFTA, now is the time. The president wants to finish negotiating the agreement by October 2013. Tomorrow may be too late.
Excerpts from Paul Craig Roberts’ new book, “The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West”:
…So-called trade agreements are not trade agreements. They are enabling acts that empower U.S. corporations to dump their American workers, avoid Social Security taxes, health care and pension costs, and move their factories offshore to locations where labor is cheap and environmental restrictions virtually nonexistent…
…post-war economics, initially successful, fell into problems from its neglect of the supply-side of the economy and from an uncritical acceptance of a country’s transfer of its capital, technology, and jobs to another country. This transfer continues to be misinterpreted as the mutually beneficial workings of free trade. In fact the transfer is the result of the pursuit of absolute advantage-the antithesis of free trade…
…Monetary and fiscal policy cannot help when the problem is that American jobs have been relocated offshore. Because of offshore production, stimulating demand stimulates production in China and other offshore sites. As high-productivity jobs have been offshored, American incomes, except for the super-rich, have ceased to grow. Thus, there is no effective way to boost consumer spending short of printing money and giving it to the population, or handing out tax rebates accommodated by monetary expansion…
…In Ricardo’s time, unique national characteristics, climate, and geography were important determinants of relative costs. Today, however, most combinations of inputs that produce outputs are knowledge-based. The relative price ratios are the same in every country. Therefore, as opportunity costs do not differ across national boundaries, there is no basis for comparative advantage. Ricardo’s other necessary condition for comparative advantage is that a country’s capital seeks its comparative advantage in its home country and does not seek more productive use abroad…
…In the traditional Ricardian free trade model, trade results from countries specializing in activities where they have comparative advantage and trading these products for the products of other countries doing likewise. In Ricardo’s example, England specializes in woolen cloth and Portugal specializes in wine. In the Ricardian model, trade is not competitive. English wool is not competing against Portuguese wool, and Portuguese wine is not competing against English wine. Somewhere along the historical way, free trade became identified with competition between countries producing the same products. American TV sets vs. Japanese TV sets. American cars vs. Japanese cars. This meaning of free trade diverged from the Ricardian meaning based on comparative advantage and came to mean innovation and improvements in design and performance driven by foreign competition. Free trade became divorced from comparative advantage without the creation of a new theoretical basis upon which to base the free trade doctrine…
…Countries competing against one another in the same array of products and services is not covered by Ricardian trade theory. Offshoring doesn’t fit the Ricardian or the competitive idea of free trade. In fact, offshoring is not trade. Offshoring is the practice of a firm relocating its production of goods or services for its home market to a foreign country. When an American firm moves production offshore, US GDP declines by the amount of the offshored production, and foreign GDP increases by that amount. Employment and consumer income decline in the US and rise abroad. The US tax base shrinks, resulting in reductions in public services or in higher taxes or a switch from tax finance to bond finance and higher debt service cost…
…Who benefits from these income losses suffered by Americans? Clearly, the beneficiary is the foreign country to which the production is moved. The other prominent beneficiaries are the shareholders and the executives of the companies that offshore production. The lower labor costs raise profits, the share price, and the “performance bonuses” of corporate management…
…The United States is unable to deal with its serious economic problems, because powerful interest groups benefit from the continuation of the problems. As long as narrow private interests can cloak themselves in free trade’s claim of increased general welfare, the American economy will continue its relative and absolute decline….
…US politicians, such as Buddy Roemer, blame the collapse of US manufacturing on Chinese competition and “unfair trade practices.” However, it is US corporations that move their factories abroad, thus replacing domestic production with imports. Half of US imports from China consist of the offshored production of US corporations. The wage differential is substantial. According to the Bureau of Labor Statistics, as of 2009, average hourly take-home pay for US workers was $ 23.03. Social insurance expenditures add $ 7.90 to hourly compensation and benefits paid by employers add $ 2.60 per hour for a total labor compensation cost of $ 33.53. In China as of 2008, total hourly labor cost was $ 1.36, and India’s is within a few cents of this amount. Thus, a corporation that moves 1,000 jobs to China saves saves $ 32,000 every hour in labor cost. These savings translate into higher stock prices and executive compensation, not in lower prices for consumers who are left unemployed by the labor arbitrage…
…Jobs offshoring neutralized the productivity advantages that American labor enjoyed. Working with superior capital, technology, and business organization, US workers had nothing to fear from cheap labor abroad. Americans were far more productive than Indians and Chinese, and their high productivity was reflected in high wages. American jobs and living standards were not threatened by low wages abroad or by the products that these low wages produced. The advent of offshoring has destroyed the productivity advantage of First World labor. Offshoring makes it possible for firms using First World capital and technology to produce goods and services for the U.S. market with low wage foreign labor. The result is to separate Americans’ incomes from the production of the goods and services that they consume. This new development, often called “globalization,” allows cheap foreign labor to work with the same capital, technology and business know-how as U.S. workers. The foreign workers are now as productive as Americans, with the difference being that the large excess supply of labor that overhangs labor markets in China and India keeps wages low…
THE BOOK IS ESSENTIAL READING FOR ANYONE WHO WANTS TO UNDERSTAND THE PROBLEMS IN ECONOMIC THEORY AND POLICY THAT ARE RUINING OUR COUNTRY.
Will, glad to see you back. You are able to put the problem in succinct terms. Thank you for that.
There are costs other than the 1.36 in labor cost by China but your example was still great. These include the costs of pegging the Yuan to the dollar via the currency manipulation game. Since the govt. of China really controls the exchange of dollars to Yuan and vice versa, they can impose these costs on labor that has no ability to ask for “a living wage” under the Chinese communist system. Hence we get the Foxconns of the world and Apple’s unholy alliance.
This capturing of the value of labor by the government of China concentrates that country’s wealth into the hands of the government. The U.S. based globalists are doing the same.
There is a theme that runs through both China and the U.S. system. It is the concentration of wealth and power and its influence on the terms of trade. In this respect our Congress has been representative but not to the economy as a whole, but to the corporate interests serving them. The saying about absolute power corrupts absolutely comes to mind.
Thanks again for the examples and Paul Craig Robert’s book, “The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West”.
Thanks Tom, But of course none of that was written by me, all those words were written by Paul Craig Roberts. The whole post was excerpts from his newest book “The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.”
I can’t recommend the book enough. He covers a lot of ground, deeply and comprehensively, yet is still concise and easy to read. An amazing amount of statistical and empirical proof is offered to back up his scathing criticisms of policy and the theories underneath them.
What I like about PCR is he is incorruptible, he is non-ideological, he genuinely cares about the fate of people and about the fate of our country, without being a jingoist or discounting the larger world. He has the ability to advocate for the American people without writing off or sacrificing the larger fate of humanity.
He goes beyond most other economists by also placing human society in its context of the larger natural world, giving an ecological dimension to his already scathing critique of modern economic thought and policy.
Instead of locking in to an ideological viewpoint that gives tunnel vision blocking all other perspectives and trends that don’t strengthen the assumptions, he looks at real measures of human prosperity and freedom and quality of life and social justice, and applies truly independent and unflinching analysis as to what is happening in all those indexes of the state of the world. Tom you mention the concentration of wealth and so does PCR, but he also describes the concentration of power and gives a sketch of the Constitutional and civil liberties crisis in our country as the counterpart to the rise of the oligarchs. pretty strong stuff from an old Reagan hand. I’ve gone back to read his older books to see how a man of such background could write the things he does now. My respect for him only increases as I recognize the independence and sincerity of his voice over several decades of immense change. He does not bow to power or the temptations of buy-outs by moneyed interests. Truly rare for someone who knows Washington inside out.
Paul Craig Roberts is the one who first woke me up to the problems of offshoring and the trade deficit. His critique of contemporary economics and policy is, to me, deep and convincing. I highly recommend reading his book “The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.”