Talking Points: Response to 3/15/16 Peterson Institute Pro-TPP Paper

Below is a briefing note called, “Assuming Away Unemployment and Trade Deficits from the TPP” from the team at Tufts University that debunked the original Peterson Institute for International Economics (PIIE) TPP study which this latest missive, “Adjustment & Income Distribution Impacts of the TPP” by PIIE’s Robert Lawrence and Tyler Moran, is premised. The key points are:

• Of course Lawrence and Moran find that TPP’s benefits far exceed the adjustment costs: They use the findings of the PIEE TPP study (Petri-Plummer) derived from a model that does not allow for permanent job loss or increased trade deficits and assumes no increased income inequality. Those assumptions, which contradict the outcomes of each past major U.S. trade pact, mean TPP wage and employment losses are just temporary “adjustment costs” on the way back to full employment. If that were not sufficient to distort the new study’s findings, the authors also pile on more outlandish assumptions to minimize the number of workers likely to be affected and the impact on their wages.

• With larger trade deficits and permanent job loss excluded by assumption, Lawrence and Moran then start discounting how many Americans would be hit even by temporary job displacement from the TPP by presenting three scenarios. 
  • They start with 1.69 million U.S. workers possibly displaced over ten years of the TPP.
  • They drastically reduce that total to 278,000 (mainly in manufacturing), by invoking another layer of assumption based on the underlying full-employment assumption: Rising demand will generate new jobs and thus limit job loss.
  • Then they reduce that to 238,000 workers by excluding workers who voluntarily leave manufacturing jobs, so the TPP can’t be blamed for those losses.

• They then apply a formula to estimate the temporary adjustment costs (essentially lost wages) from those “displaced.” They compare these to Petri and Plummer’s reported U.S. TPP gains of $131 billion. Recall that these gains are based on the outlandish assumptions baked into the model. Another study that allowed for job loss and increased trade deficits found the TPP would result in net losses for the United States.

• Lawrence and Moran’s resulting cost-benefit calculation does not report the costs, just the ratios, for the three scenarios. The authors report that for their “most realistic” scenario (#3), the one with the fewest displaced jobs, the benefits are 18 times the costs over the 10-year “adjustment period” (2017-26).
  • Then, they add in three “post-adjustment years” 2027-2030 and the ratio skyrockets to 115:1. Why? Presumably because with the full-employment assumption all displaced workers are, by then, happily employed in their new post-TPP jobs.

• Finally, the authors also make the unfounded assumption that U.S. wages will increase at the same rate as productivity, though that has not happened for thirty years. This assumption automatically raises most workers’ incomes in their analysis. They also claim the assumed income gains will be much the same for each quintile of U.S. income distribution, with the bottom quintile seeing an increase 0.007 of a percentage point higher than the top. Technically, that’s mildly progressive. But consider it in terms of absolute gains: The bottom 40 percent sees just $8 billion in income gains, while the top quintile would get $48 billion. (i.e., more in absolute terms than the bottom 80 percent combined.)

• The resulting cost-benefit calculations are misleading not only because the costs are assumed away, but also because the benefits are overstated. This latest paper takes the earlier Petri and Plummer estimates at face value, with all their flawed growth-boosting assumptions (such as a surge in foreign investment and most growth gains from non-trade measures). Plus, the gains are simply asserted to be large, when even the Petri-Plummer estimates of gains are incredibly small, just 0.5 percent of GDP for the United States in 2030, i.e., a paltry 0.029 percent per year on average over 15 years. How small is that? Even with all of the unrealistic assumptions, for the bottom 40 percent of U.S. income distribution, the gains amount to just $62 per person, in 15 years.

THE FULL BRIEFING NOTE FROM THE TUFTS TEAM CAN BE FOUND HERE: http://triplecrisis.com/assuming-away-unemployment-and-trade-deficits-from-the-tpp/

 

President’s Annual March Trade Agenda

Administration Continues to Use Debunked Talking Points to Sell TPP

The Obama administration released the 2016 Trade Policy Agenda today as the Trans-Pacific Partnership (TPP) faces increasing bipartisan opposition in the U.S. House and Senate. However, instead of addressing the growing chorus of concerns in the 2016 trade agenda, the administration continues to push debunked talking points to the American people in hopes of selling the controversial agreement.

Public Citizen has already debunked most of talking points included in the 2016 trade agenda report:

Debunked talking point: More than 18,000 tax cuts on Made-in-America exports.

• Reality: The Obama administration is trying to shift focus to an impressive-sounding number with its mantra about TPP delivering “18,000 tax cuts for Made in America exports.” But that is just the raw number of tariff lines cut by the five TPP nations with which the United States does not already have free trade agreements (FTAs). The United States only sold goods to those nations in less than 7,500 of the 18,000 categories. Indeed, the United States exports no goods to any nation under some of the touted 18,000 tariff lines.

 

 

 

Debunked talking point: The President’s trade agenda is focused on supporting U.S. jobs and raising wages.

• Reality: The TPP includes rules that make it cheaper and less risky to offshore U.S. jobs to low wage nations. The pro-free trade Cato Institute calls these investor protections a subsidy on offshoring. The administration stopped claiming the TPP would create jobs after a four Pinocchio rating by the Washington Post fact checker. Since the North American Free Trade Agreement (NAFTA), more than 57,000 U.S. manufacturing facilities have closed and five million U.S. manufacturing jobs – one in four – were lost with more than 875,000 U.S. workers certified under just one narrow U.S. Department of Labor program.

 Debunked Talking Point: Putting more money in middle class pockets.

• Reality: A recent study finds the TPP would spell a pay cut for all but the richest 10 percent of Americans by exacerbating income inequality, as past trade deals have done. That would contradict Obama’s 2015 State of the Union inequality reduction goal. Macroeconomic theory predicts if Americans face more competition from workers in Vietnam who make less than 65 cents/hour, wages will be pushed down. Sixty percent of manufacturing workers losing jobs to trade who find reemployment face pay cuts, with one in three losing more than 20 percent, per U.S. DoL data. There is academic consensus that trade has contributed to the major rise in inequality.

Debunked talking point: The TPP is preserving our environment.

• Reality: The environmental groups that have celebrated Obama’s achievements with the global climate treaty and his decision to the stop the XL Pipeline call the TPP an act of “climate denial.” The pact would roll back the environmental standards that President George W. Bush was pressured into including in his trade deals. Indeed, in a recent Newsweek op-ed, the Cato Institute celebrated the TPP’s watered down environmental terms. Environmental groups listed on the White House website as supporting the deal, including NRDC and Defenders of Wildlife, in fact came out in opposition after seeing the final text.

Debunked talking point: The TPP is promoting our values.

• Reality: While the Obama administration is celebrated for its defense of gay equality after dust-binning the “Don’t Ask, Don’t Tell” policy and joining those announcing that the Defense of Marriage Act was unconstitutional, it decided to allow Brunei to remain in the TPP even after the country announced that it would begin stoning to death gays and single mothers under new sharia-based laws. This has led to LGBTQ groups joining the TPP opposition.

Debunked talking point: The TPP is promoting the U.S. auto industry.

• Reality: The TPP would threaten the president’s successful rescue of the U.S. auto industry and thousands of U.S. jobs. It would allow vehicles comprised mainly of Chinese and other non-TPP country parts and labor to gain duty free access. This would gut the rules of origin established in NAFTA that condition duty free access on 62.5 percent of value being from NAFTA countries. Ford has supported all past U.S. trade deals, but opposes the TPP.

Debunked talking point: 98 percent of U.S. exporters are small or medium-sized enterprises (SMEs).

• Reality: SMEs comprise most U.S. exporting firms simply because they constitute 99.7 percent of U.S. firms overall. However, only 3 percent of U.S. SMEs export any good to any country. In contrast, 38 percent of large U.S. firms are exporters. The relatively few small businesses that do actually export have seen even more disappointing export performance under FTAs than large firms have seen. U.S. small businesses have seen their exports to Korea decline even more sharply than large firms under the Korea FTA (a 14 percent versus 3 percent decrease), while small firms’ exports to Mexico and Canada under NAFTA have grown less than half as much as large firms’ exports. Indeed, small firms’ exports to all non-NAFTA countries have exceeded by more than 50 percent the growth of their exports to NAFTA partners.