Help or Hurt? The Effect of TPA & TPP on Manufacturing
Published May 8, 2015
The top line on the Trans-Pacific Partnership (TPP) is dazzling. The deal will connect the United States and 11 other economies in a region that represents nearly 40% of global GDP.
But below the eye-popping number is a fundamental question: Will TPP hurt or help U.S. manufacturing, the bedrock of the American middle class?
While much has been said about NAFTA and its impact on manufacturing, an analysis of all trade deals concluded since 2000 tell a very positive story for manufacturing. Data show that these 13 modern trade deals with 17 countries have, in fact, increased opportunities for American manufacturers while also helping the U.S economy as a whole, increasing middle-class prosperity, and supporting American workers. As policymakers evaluate trade promotion authority (TPA) and TPP, manufacturing is one of the most important reasons to support this legislation.
Here are the 5 reasons TPA and TPP should benefit American manufacturing and the people who work in this sector:
#1: Current barriers to U.S. exports are immense.
The principal purpose of trade agreements is to knock down barriers so Made in the USA products can make it to foreign shelves. How burdensome are those barriers? According to the World Economic Forum, American manufacturers face some of the steepest trade barriers for exports in the world. For example, when you look at the amount of tariffs a country faces, Mexico faces the 28th fewest barriers out of 138. China faces the 58th fewest. And other TPP countries face fairly low tariffs: New Zealand, 23rd fewest; Peru, 11th fewest; Singapore, 5th fewest; and Vietnam, 9th fewest. But not the United States. The U.S. clocks in at 130th out of 138—barely edging out countries like Bhutan and Liberia. This means that 129 countries face fewer trade barriers than American manufacturers.
Here’s how that looks in practice. In 2014, almost 70% of U.S. imports crossed our borders duty-free, with our average tariff rate at 1.4%. Comparatively, U.S. exporters deal with an average tariff rate of 6.8%, making it harder for American companies to compete. The playing field is not level. These export barriers are part of the reason why of the 40 largest economies in the world, the United States ranks 39th in the amount of its gross domestic product that is derived from exports.
#2: When trade deals have leveled the playing field, manufacturing export balances have improved.
We analyzed all of the U.S. trade agreements that went into effect since 2000—13 deals in 17 countries—to measure how the goods sector specifically fared. In 13 of the 17 countries, the U.S. balance of trade in the goods sector improved. In the aggregate, the United States went from a $3 billion deficit in the blue-collar goods sector (prior to the deals) to a $31 billion annual trade surplus in 2014 dollars. In the manufacturing sector alone, the U.S. enjoys a $55 billion trade surplus with its FTA partners, compared with a $579.2 billion deficit with all other countries.
Analysis of individual trade deals shows the positive effect that a FTA has had on U.S. manufactured goods exports. Data from the National Association of Manufacturers looked at exports in the year before the FTA and last year:
- After the U.S.-Chile Free Trade Agreement, U.S. manufactured goods exports grew six-fold, from $2.5 billion in 2003 to $15 billion in 2014.
- After the U.S.-Australia Free Trade Agreement, U.S. manufactured goods exports nearly doubled, from $13 billion in 2004 to $24.6 billion in 2014.
- After the U.S.-Peru Trade Promotion Agreement, U.S. manufactured goods exports increased by 58%, from $5.6 billion in 2008 to nearly $9 billion in 2014.
#3: When we export more manufactured goods, wages improve.
According to the Council of Economic Advisers report on the economic benefits of trade, “The rapid growth of U.S. manufacturing exports has helped support this dramatic rebound in the U.S. manufacturing sector coming out of the Great Recession.” And this dramatic rebound is in part because of the 18% wage premium on export-related manufacturing jobs.
#4: The overseas prize is immense.
Over the next 15 years, PwC estimates that the U.S. economy will grow from $17.4 trillion to $25.5 trillion. Meanwhile, the rest of the world will grow by $53 trillion (from $65.7 trillion to $119 trillion). The question for American manufacturers is whether this sector will bank on expanding by selling within the United States and the $8 trillion in growth expected at home, or the rest of the world and the $53 trillion in new wealth overseas.
#5: TPA puts a process in place to verify the manufacturing impact of TPP—before Congress has to vote on the deal.
It is impossible to know the exact implications of a trade deal that is not yet completed. But voting for TPA actually allows Congress to better evaluate the impact on manufacturing. Here’s how: TPA gives the President the ability to get the best deal possible for U.S. interests. And once negotiators reach a deal on a trade agreement, TPA 2015 requires extensive economic analysis by the U.S. International Trade Commission (ITC) before Congress has to vote on a final package. Specifically, the ITC must submit:
“A report assessing the likely impact of the agreement on the United States economy as a whole and on specific industry sectors, including the impact the agreement will have on the gross domestic product, exports and imports, aggregate employment and employment opportunities, the production, employment, and competitive position of industries likely to be significantly affected by the agreement, and the interests of United States consumers.”
This report will be open to the public, for policymakers and everyone to evaluate.
Manufacturing is critical component to increasing middle class prosperity. And the sheer size of foreign markets presents an astounding opportunity to get more of our goods on foreign shelves—helping American businesses and American workers. They just need a fair shake, and that’s where trade deals can help.
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