The Trans-Pacific Partnership (TPP) is a trade agreement between the United States and 12 nations bordering the Pacific (notably excluding China). Being negotiated since 2006, it includes economies ranging from Brunei to Japan and South Korea. Collectively, these nations make up nearly 40% of the world’s GDP. However, the TPP has recently generated a lot of controversy as the President calls upon Congress to approve “fast-track” legislation that would help expedite the agreement’s passage later this year.
Lawmakers primarily fear that the TPP will be a repeat of NAFTA and that the US will be promoting free trade ideals at the expense of domestic workers. To their credit, the fears are not wholly unfounded. Thea Lee, a trade economist and deputy chief of staff of the AFL-CIO, has posited that between 40 to 60 percent of the growth in income inequality can be attributed to globalization. In addition, with many trade barriers already low, there seems to be little opportunity for further progress and positive impact for workers. Peter Petri of the Peterson Institute of International Economics writes, “Overall, we estimate that $77 billion per year would be added to US real incomes by 2025.” Given the size of the US economy, this does is not anything significant. Even Petri admitted that there would be few large benefits for the US early on.
However, this is where perhaps most people fail to see the foresight of the Obama administration. While, yes, the one goal of the agreement is to promote US industries and create jobs (which it does – albeit for only select industries such as agriculture, financial services, technology, etc.), the main goal of this agreement is to position the United States so that it can better dictate and shape the rules of trade around the Pacific. The agreement is a response to the rapid development of China and its efforts to exert influence around neighboring countries. The TPP is to serve as a counterweight to this influence.
It is only when we consider the long-term implications of such a strategy that we see the value of the TPP. In the long run it helps entrench US companies and products in the global value chain and increases markets available for businesses and workers to sell their products and services to. It allows the US government to better protect intellectual property and combat piracy thereby protecting the work of American innovators and workers. In all aspects, it gives the US an upper hand in the global marketplace.
Will it be easy? Certainly not. The benefits from the deal will not be uniform across all products and industries. That is to be expected – rarely can something satisfy everybody and rarely are labor markets completely flexible. There will be frictions and as mentioned before income inequality is definitely a problem that needs to be addressed. However, hindering this trade deal will do little to that effect. Inequality is a function of a number of structural and variable factors, including globalization. However, the trend towards increased globalization is inevitable and rather than trying to hinder it, we must enact programs to equip workers to adjust to it. In the long run, US workers will benefit from the strategic position in the world being offered by the TPP.