Swim In Global Trade Wave, Or Drown

Swim In The Global Trade Wave, Or Drown
The future belongs to workers who develop higher-level, specialized skills. Here, NASA Community College Aerospace Scholars engage in a three-day workshop. Photo: NASA Jet Propulsion Laboratory.

Egged on by anti-trade Presidential candidates Bernie Sanders, Donald Trump and Hillary Clinton, primary election voters across the U.S. have been in an ugly mood toward global trade and particularly the proposed Trans-Pacific Partnership (TPP). At the same time, employers and business associations in Washington state, as elsewhere across the U.S., have voiced strong support for TPP. A recent Washington state poll for the Washington Council on International Trade (WCIT) by Elway Research showed majority support.

No Turning Back From Globalization

Yet some Members of Congress now say that due to the charged nature of current public dialog around free trade, a hoped-for vote to approve the measure shortly after November’s elections may not occur. If no vote occurs and TPP dies in the next administration, though, the harm will be palpable, according to a growing body of trade advocates and experts. They assert there’s no turning back from the changes already wrought to our economy by globalization, specialization, and the behavior of consumers for whom price – not nation of origin – will always remain the dominant factor.

The TPP pact between the U.S. and 11 Asia-Pacific nations would cut more than 18,000 taxes levied on U.S. exports including key Washington state products such as salmon, wheat, paper, frozen french fries, cherries and hops. In the U.S. alone, TPP tariff reform would by 2032 boost annual real income $57 billion, annual real gross domestic product $42 billion, and annual exports to TPP partner nations $34 billion.

WCIT President Eric Schinfield says additional and meaty economic gains would accrue from other TPP provisions. These would improve intellectual property rights protections, boost cross-border data flows, and simplify trade rules.

Strong Support From Washington Business For TPP

Among 106 business and organizations urging Washington state’s Congressional delegation and U.S. Senators to back TPP in a recent letter were Boeing, Bellingham Marine, Marigold, the Northwest Food Processors Association, Washington Cattle Feeders Association, WCIT, Washington Farm Bureau, and Washington Retail Association.

Some 40 percent of Washington state’s jobs are tied to global trade. A recent poll for WCIT by Elway Research showed 54 percent of Washington voters supported TPP, 23 percent were opposed, and 21 percent undecided. National polls have also shown majority support.

However, hard-line opposition to the pact has dominated public dialog. Trump and Sanders in particular have fostered, among middle-aged working class primary election voters, environmentalists and social justice warriors, a growing and virulent opposition to TPP. It’s evident in online forums, the campaign trail, and the inboxes of Congress and the Senate.

“The first casualty” of “the protectionist bent of the 2016 Presidential campaign” could be TPP as primary-season blowback on the proposed pact “will make it even harder, if not impossible, for Congress to back TPP, even in a lame-duck session after the election,” reports Bloomberg News.

Although Clinton has now clinched the nomination, Sanders has been campaigning against TPP and the issue has picked up steam among protectionist Democrats and supporters of the presumptive Republican nominee Trump. As well, Clinton has pledged to continue her newfound opposition to TPP, which she helped President Obama promote as his Secretary of State.

TPP Congressional Hearings Likely In September

Others, including sources cited by the New York Times, say a TPP deal is still likely, although the required start of Congressional hearings on TPP in September will throw additional light on objections.

The President of the U.S.-China Business Council, John Frisbee, tells Bloomberg that either Clinton or Trump would as President ultimately shift their stance on TPP to help U.S. businesses expand their markets and grow jobs. The Council’s membership includes Amazon, Boeing, and Microsoft.

Consumer Savings Fuel Increased Spending Power

Less clear than the contours of the political imbroglio and the talking points trotted out by both sides, are the actual mechanics of how global trade benefits the U.S. economy, and the workers and households who make its gears move.

“The case for free trade is not obvious. The benefits…are dispersed and accrue over time, while the adjustment costs tend to be concentrated and immediate…We note and lament the effects of the clothing factory that shutters because it couldn’t compete with lower-priced imports. The lost factory jobs, the nearby businesses on Main Street that fail…are obvious. What is not so easily noticed is the increased spending power of the divorced mother who has to feed and clothe her three children. Not only can she buy cheaper clothing, but she has more resources to save or spend on other goods and services, which undergirds growth elsewhere in the economy,” writes Daniel J. Ikenson, Director of Cato Institute’s Center For Trade Policy Studies.

Ikenson adds that because iPhones are assembled at a far lower cost in China than in the U.S., that also makes them more ubiquitous and boosts “the emergence of spin-off industries” based on mobile apps like Uber and AirBnB. These fast-growing businesses in turn stimulate direct and indirect spending – benefiting a wide range of actors in regional economies globally.

Enough Capital, Fast Enough

That’s not to say that the long-unfolding shift of manufacturing jobs away from the U.S. to lower-cost nations, and job losses and flattened wages for some U.S workers, aren’t legitimate concerns. However, economies are by their nature dynamic. New opportunities replace those which are constricting, so long as enough capital can flow, fast enough.

Columbia University business school dean Glenn Hubbard and economist Tim Kane of the Hoover Institution at Stanford University argue that there are real, middle-class and working-class economic issues needing attention, but killing TPP isn’t the right course.

One smart move, they say, would be to pare back parts of the Dodd-Frank financial reform law. They says it leaves capital markets “hamstrung.”

Capital markets provide important economic and jobs stimulus through sales of equity investment shares in new and existing businesses, and through loans from banks and institutional investors to businesses and individuals.

Economic Advantages Of Global Specialization

Yuval Levin, founder and editor of National Affairs, writes in his new book The Fractured Republic, that “protectionist policies and tariffs…will always have a significant political constituency, but as a practical matter they are largely futile. The economic advantages of global specialization and trade are just too great.”

That’s exactly right. As the U.S. Congressional Research Service has explained, higher-level skills are becoming a requirement in the manufacturing sector, as more and more jobs there are about managerial aptitude rather than physical or rote labor. The forward march of highly competitive global pricing, specialization and automation also spells defining challenges for many other low-skilled workers.

Levin explains, “We are not likely to find ways to manufacture goods more cheaply than nations with far lower costs of living for workers. As a result, lower-skilled workers in our country will not often have a comparative advantage in producing goods that can be traded…We can, however, change the skill level of our population, and we can try to channel unskilled labor from manufacturing and production toward services that cannot so readily be outsourced.”

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