President Obama is trying to round up votes in Congress to ratify the Trans-Pacific Partnership before the end of his term. The White House has made approval of the 12-nation free-trade deal, which took seven years to negotiate, a top priority. But many in Congress and around the country have serious concerns about how it will affect everything from environmental regulations and drug prices to jobs and wages.
Supporters of the trade deal were therefore pleased when a study from the venerable Peterson Institute for International Economics projected that the TPP would boost exports and economic growth. If ratified, by 2030, the U.S. economy would be 0.5 percentage point larger with the TPP than without it, according to the study. Annual exports would be $387 billion higher as a result of the deal.
The Peterson Institute didn’t really investigate the central question of concern to U.S. politicians and voters: Will the TPP incite a wave of cheap imports that cost workers their jobs? The model of the global economy Peterson used, the study explains, “assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries.” So on the face of it, this paper doesn’t appear to have much to say about the jobs situation.
But if we dig further into its second assumption — that trade surpluses or deficits also are unchanged — something important gets revealed.
For instance, the Peterson Institute promoted its finding that annual exports will increase by $387 billion. If the trade balance stays the same, that means imports will increase by $387 billion too.
The money foreigners might have spent on our cars and other manufactured goods will instead be used to pay Pfizer higher prices for its drugs.
Consider, then, that one of the major aspects of the trade deal is stronger and longer patent protections for pharmaceutical companies. Obama and other politicians have touted this as a major accomplishment, saying it will ensure that other countries pay us for the research done by our pharmaceutical industry.
But it is important to understand who is truly getting paid in this story — and who is not. Working from the assumption that the TPP doesn’t change the trade balance, if the pharmaceutical industry starts getting more money for its drugs, then other American industries will start getting less money for whatever they try to sell overseas.
Manufacturing is quite likely to be a big loser. In effect, the money foreigners might have spent on our cars and other manufactured goods will instead be used to pay Pfizer higher prices for its drugs.
The Peterson Institute’s model helps to make clear this trade-off, the discussion of which has almost been completely missing from the public debate over the TPP.
There are certainly other positive aspects to the TPP that will make it attractive to substantial numbers of voters and members of Congress. But for most people, the stronger rules on patents and copyrights are not good news.
Dean Baker is co-director of the Center for Economics and Policy Research. He is coauthor of “Getting Back to Full Employment: A Better Bargain for Working People.”