For the past few weeks, Democrats have fought amongst themselves over whether to renew Trade Promotion Authority (TPA), giving President Obama and Congress the ability to fast-track up-or-down votes on trade agreements like the Transpacific Partnership (TPP) with Asian nations and the Transatlantic Trade and Investment Partnership (TTIP) with Europe.
Senator Elizabeth Warren (D., Mass.), the Left’s loudest free-trade critic, argues that, “We can’t keep pushing through trade deals that benefit multinational companies at the expense of workers.” This is a flawed protectionist argument. It also fails to understand the true nature of the TPP. Unlike NAFTA, WTO-trade rounds and other trade agreements that preceded it, the TPP’s main focus is not on reducing tariffs and removing barriers to outsourced labor. Instead, its chief aim is to establish international intellectual-property protections that would boost American exports manufactured by low-skilled workers.
As Noah Smith points out, most outsourcing of low-skilled labor to emerging markets has already happened, during the period of globalization that had its zenith 15 years ago. It is unlikely to accelerate in any way with the approval of free-trade agreements such as the TPP (with primarily developed Asian nations) or the TTIP (with developed European nations).
Today, American corporations — particularly pharmaceutical companies that employ many low-skilled workers — could benefit enormously from an expansion of exports to developed Asian countries like Japan and South Korea. Gaining intellectual-property rights in emerging economies that have largely failed to punish intellectual-property theft and continue to be rife with fraud would be a huge boon to American businesses.
Gaining intellectual-property rights in emerging economies that have largely failed to punish intellectual-property theft and continue to be rife with fraud would be a huge boon to American businesses.
Indeed, a report by the Commission on the Theft of American Intellectual Property estimated that China alone accounts for 50-80 percent of intellectual-property theft cases globally, at an annual cost to the U.S. economy of $300 billion and millions of jobs.
A recent study by the Peterson Institute for International Economics finds that a bilateral free-trade agreement with China would increase U.S. exports by almost $400 billion annually, increase U.S. national income by more than $100 billion annually, and add 1.7 million jobs to the U.S. economy over ten years.
While China is not a party to the TPP, the expanded intellectual-property protections and other provisions the agreement imposes on trade with the Asian countries who do sign it would still benefit U.S. workers. The Peterson Institute study estimates that economic gains from the TPP would be in the neighborhood of $1.9 trillion.
When large foreign economies simply ignore U.S. patents, innovation is less profitable. Stronger international intellectual-property protections would help American companies export more to countries where patent laws were previously ambiguous or absent, which would then encourage these companies to hire more low-skilled American workers to manufacture these expanded exports.
There is a bipartisan consensus on the benefits of free trade to the entire U.S. economy. An open letter urging the renewal of TPA was signed by former chairs of the President’s Council of Economic Advisers under Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H. W. Bush, Bill Clinton, George W. Bush, and Barack Obama.
They argue that “economy-wide benefits resulting from increased trade provide resources to make progress on important social goals, including helping those who are adversely affected,” through measures such as providing expanded opportunities for education to retrain individuals who have lost their jobs to outsourcing.
The idea that Democrats would block giving TPA to a Democratic president is a sign of our times, marked as they are by economic populism and a fundamental misunderstanding of the interaction between inequality and economic policy.
This illogical Democratic dissent against TPA comes despite concessions to include provisions in trade agreements that require U.S. trade partners to strengthen environmental and labor standards.
The ability to ratify new trade agreements and open trade barriers should be given to both the President and Congress to show not just that robust economic growth is a bipartisan objective, but also that free trade can benefit low-income workers.
— Jon Hartley is a Forbes economics contributor and the co-founder of Real Time Macroeconomics LLC, a financial-technology firm.