Report predicts Trans-Pacific pact will boost economy, but passage still uncertain in U.S.
The Obama administration, laboring to win congressional support for its politically unpopular Pacific trade deal, got unexpectedly little help from an independent federal report that showed the 12-nation trade pact would have a relatively modest positive effect on the U.S. economy and jobs.
The 792-page report by the U.S. International Trade Commission, released Wednesday after months of public comment and much anticipation, said that the Trans-Pacific Partnership was likely to boost U.S. annual real income by $57.3 billion by 2032. That amounts to an increase of 0.23% compared with what income would be without the agreement. The effect on total U.S. economic output, or gross domestic product, and job creation would be even smaller in percentage terms.
U.S. exports would grow under the agreement, but imports would increase even more, although American firms would see a significant net gain in trade with new free-trade partners in the Pacific pact, which includes Japan, Malaysia and Vietnam. By year 15 of the agreement, the commission projected, U.S. employment would be 128,000 jobs higher annually, although that amounts to just 0.07% more than the baseline projections.
Analysts had expected the trade commission projections to be closer to some private studies that had estimated the Pacific agreement would add well over $100 billion annually to national income.
Given the toxic partisan political climate -- in an election year when lawmakers and presidential candidates from both parties are wary of supporting a hot-potato issue such as free trade -- the report is unlikely to give much of a boost for the Obama administration to secure congressional ratification this year.
Michael Froman, Obama’s top trade official who brought the Pacific deal to completion in November, noted that the report’s quantitative projections do not include non-tariff benefits in the pact, such as rules that would help U.S. firms better protect intellectual property, secure a freer and more open Internet for commerce, and face less red tape and unfair competition from state-subsidized foreign competitors.
“With this study, every major reputable study has now said TPP will benefit the American economy,” he said in a conference call with reporters immediately after the report’s release. Froman also noted that there was more to the agreement that isn’t quantifiable, what he called “the cost to American leadership if we fail to pass TPP and allow China to carve out one of the world’s fastest growing regions with their own free-trade agreement.”
China is not a party to the pact, a point that Obama repeatedly made in arguing that the U.S.-led Pacific trade pact is crucial in strengthening America’s economic and security interests in Asia. The Pacific agreement also includes Canada, Australia, Mexico, Singapore, Chile, Peru, New Zealand and Brunei.
The pact, which binds together economies making up about 40% of global economic output, will phase out duties on thousands of goods and set uniform rules and standards on intellectual property, labor rights, the environment and other areas affecting trade and investment across borders.
The trade commission report said that U.S. firms, particularly agricultural, would benefit from the pact, but output in manufacturing and the energy industry would shrink. U.S. beef growers, for example, are expected to see gains, but the rice industry, which is large in California, said it would not endorse the agreement because of a lack of greater market access to Japan.
If ratified, the agreement would be the world’s biggest regional trade alliance and a legacy-making accomplishment for Obama. But opposition from many lawmakers in his own party and dwindling support from key Senate Republicans who are seen as crucial for passage mean the pact is unlikely to get a vote before the November election.
If Obama is unable to win passage before leaving office, the fate of the pact is unclear because Democratic front-runner Hillary Clinton has voiced reservations and the presumptive Republican nominee, Donald Trump, has condemned it.
Some supporters are pinning their hopes on the short window in the lame-duck session, between November and the new Congress in early January.
“We’re within reach of getting this deal done, but we’re not going to get anything done until the main event is over,” said Thomas Donohue, president of the U.S. Chamber of Commerce, referring to the presidential election Nov. 8.
Among the Trans-Pacific Partnership parties, only Malaysia has ratified the pact. Legislators in Japan, the biggest economy in the pact after the U.S., are expected to approve the deal as early as September.
The U.S. is the toughest battleground for the Pacific agreement. Many American workers, particularly those still hurting from the Great Recession, see globalization and trade as prime culprits, and the political atmosphere on trade is likely to get more heated heading toward November.
The report by the trade commission was mandated under U.S. law, and marks a major final step before Obama can introduce an implementation legislation for Congress to vote on. Analysts had expected the commission’s projections to be close to those of the Peterson Institute for International Economics, which earlier this year projected an increase of $131 billion in annual real income by 2030.
Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, said trade economic projections should be taken with a grain of salt. “They’re incredibly uncertain,” he said. What’s important, he added, is that the trade pact means positive things for the U.S. economy.
Critics of the Pacific pact will undoubtedly dispute that, noting that past free-trade deals and market access to China have proved costly to the U.S. economy and many workers.
Economic forecasting of trade deals is hardly a science, based on simulations and certain assumptions about employment and economic conditions. Trade flows in particular are affected by the broader global economy and the vagaries of trading partners, their policies and development.
Dean Baker, co-director of the Center for Economic and Policy Research, said that perhaps the single biggest shortcoming of past trade forecasts, whether from the trade commission or private groups, is that they cannot account for fluctuations in exchange rates, especially when governments intervene. “Currency is the bulk of the ball game,” he said in a conference call ahead of the trade commission’s report.
Although rules on currency and protecting labor and the environment have been stumbling blocks for Democrats, congressional Republicans, who have traditionally backed free trade, have been reluctant to support the Pacific agreement over issues including the length of intellectual property protection for certain pharmaceuticals and a provision that prevents tobacco companies from accessing a special international arbitration panel to challenge anti-smoking laws.
Senate Majority Leader Mitch McConnell, a Republican from Kentucky, a major tobacco state, has indicated that a trade bill wasn’t likely to pass this year. Clinton, who once trumpeted the Pacific deal, has said she would not support the agreement now or after the election, citing concerns about the trade pact’s effect on American jobs.
And Trump has called the Trans-Pacific Partnership a “horrible deal,” saying it would further devastate American manufacturing jobs.
Richard Katz, a U.S.-Japan economic relations specialist in New York who has closely followed the Pacific trade deal, put the chance of a ratification during the lame-duck Congress at just 20%.
“The issue is whether enough things would change to allow it to pass either in the lame-duck session of Congress or else under the next president,” he said in a research alert to subscribers of the publication Oriental Economist Report. “We don’t see any signs that this is the case; in fact, we’re seeing signs of motion in the opposite direction.”
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