Just How Good Is History's Biggest Trade Deal?

Just How Good Is History's Biggest Trade Deal?

Why you should care

Because details of this historic deal are now public, and consumers aren’t the only ones who stand to benefit.

Simonomics: A regular look at the global economy from a former staff columnist at The Wall Street Journal.

Already bustling with activity, the enormous ports of Long Beach and Los Angeles will likely be bursting at the seams within the next five years as more and more brightly colored containers get loaded and unloaded. Together, they’re already the ninth-busiest port in the world — and a similar scene looks set to be replicated up and down the coast in the ports of Oakland, Tacoma, Seattle and Vancouver.

The boost will be driven by the Trans-Pacific Partnership, a deal pushed heavily by the Obama administration that will cover trade between a dozen countries, including the U.S., Canada, Mexico and Japan. While an agreement was announced last month, its details only recently emerged and all of the countries involved still need to ratify the agreement. Still, it’s clear that, at first, the benefits will go to the ports. “The longshoremen, who are already well paid, will have a lot more hours and more overtime pay,” says Natasha Boyden, an independent shipping analyst.

This particular deal may appeal to American consumers, as cheaper goods flood onto retailers’ shelves.

In general, trade is good for economic growth — both theoretically and in practice — and increasing global trade and higher gross domestic product have gone hand in hand. This particular deal may appeal to American consumers, as cheaper goods flood onto retailers’ shelves. After all, the U.S. has long been the home of an insatiable appetite for stuff; the more, and the cheaper, the better. And one of the countries likely to benefit from this will be Japan, which was once lambasted for cheap unreliable products. “The Japanese will get considerably more protection from the threat of new trade barriers from the U.S.,” says Alan Tonelson, a trade expert who worked for the U.S. Business and Industry Council for two decades.

But if shipping all those high-tech gadgets or pharmaceuticals and cars from Japan and other countries increases enough, it may overwhelm the available capacity at the ports and cause congestion. Such a problem wouldn’t be fixed quickly. How long would it take to build out bigger port capacity? “It certainly won’t be like in Asia, where they build a bridge in three days,” says Boyden. Of course, if history is anything to go by, there will also be economic casualties. As a direct result of the trade deal with China, the U.S. lost approximately 800,000 manufacturing jobs between 2000 and 2007, according to a working paper from August by the St. Louis Federal Reserve. The TPP is bigger, so one wonders if there could be even more losses.

Still, the manufacturing sector might have done better if American companies focused on exporting as well as selling close to home. The problem: “U.S. companies tend to be U.S.-centric,” says James Daly, president and CEO of Euler Hermes Americas, which offers debt insurance to exporters. Certainly the numbers back Daly up. From 2009 through 2012, around 40 percent of U.S. growth came from exports — yet only 4 percent of U.S. firms export products and then it’s usually to Canada or Mexico, according to the Brookings Institution. So even though it hasn’t been traditional for American companies to focus on foreign markets, it may make sense and turn out to be one of the TPP’s biggest advantages.

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