Global trade

The President’s Council of Economic Advisers released a report Thursday that warned of the risks to U.S. workers and businesses if Congress fails to pass the Trans-Pacific Partnership.

The council noted that in 2015, the U.S. shipped $680 billion of goods and $184 billion in services exports to the 11 other countries who participated in negotiating TPP — Australia, Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand.

The council’s report cited a number of independent economic analyses that concluded the TPP agreement would provide opportunities for American consumers, workers and businesses, such as lifting growth rates over time and contributing to rising living standards. Studies also suggest that the majority of the gains from TPP would accrue to workers as increasing productivity and demand for labor would contribute to wage increases relative to a world without TPP, consistent with the evidence that exporters tend to pay higher wages than similar non-exporting firms.

Both presidential candidates have said they oppose TPP, at least in its present form, claiming it would lead to job losses, but some experts feel it might have enough bilateral support to pass in the lame duck session of Congress that follows next week’s election.

The CEA said, “The cost of not passing TPP would likely be substantially larger than just the foregone benefits because existing trade relationships would not necessarily remain unchanged, as other countries would not wait indefinitely for the United States to ratify the agreement. Instead, in the absence of TPP, countries have already made it clear that they will move forward in negotiating their own trade agreements that exclude the United States. These agreements would improve market access and trading opportunities for member countries, while U.S. businesses would continue to face existing trade barriers.”

One such agreement is the proposed 15-nation Regional Comprehensive Economic Partnership, a trade pact that includes China, Japan, India and the 10 member states of the Association of Southeast Asian nations that could potentially fill the void left if Congress fails to pass TPP.

“If TPP did not pass, the United States would not only forego substantial economic gains, but would also face trade diversion and enjoy less market access compared with other countries such as China,” the CEA said. “RCEP will provide its member countries with improved access to the markets of seven countries that are members of the TPP, putting U.S. exporters at a disadvantage and threatening the billions of dollars of exports the United States currently sells in the region, in addition to squandering the new export opportunities that TPP would provide.”

Nearly 45 percent of current U.S. goods exports go to TPP countries, highlighting the importance of improved market access, trade facilitation and clear rules of the road for trade with these countries, the council noted.

More than $225 billion in U.S. exports or about 10 percent of total U.S. exports to the world go to the seven countries that are in TPP but would also be in RCEP in the event TPP is not passed and RCEP goes forward. Apparel was among the industries at a mid-level risk of about $200 million in exports, while fabric mills were at the bottom with minor export risk noted.

“The status quo is not guaranteed into the future and not passing TPP would likely create new challenges for American exporters and their employees,” the CEA said. “In particular, if TPP is not passed, trade agreements between other countries will continue and these other trade agreements in Asia that do not include the United States will not be based on U.S. values or a strong vision for raising standards and leveling the competitive playing field for global commerce.”

The report analyzed, as an example, the Japanese market and compared the tariffs that U.S. and Chinese firms would face under RCEP, showing that Chinese firms would enjoy meaningful tariff cuts that would improve their competitive position relative to U.S. firms. It also noted that this is just one of scores of bilateral trading relationships between the 16 countries involved in RCEP negotiations.

Nearly five million people work in U.S. goods-exporting industries that could face a direct loss of competitive position relative to China if RCEP were to give its member countries preferential access to the Japanese market over U.S. firms, the council said, adding that losses to these industries would compound the foregone benefits of TPP for U.S. firms who would have benefited from improved market access.

In the event RCEP is implemented and TPP is not, China likely would see substantial tariff cuts when selling to Japan, with typical reductions of more than 5 percentage points where tariffs are cut and many tariffs cut by more than 10 percentage points.

In addition, 35 industries in the U.S. that sell a combined $5.3 billion in goods exports to Japan a year would see an erosion of their market access to Japan relative to Chinese firms due to tariff cuts under RCEP. These U.S. industries include 162,000 business establishments and employ nearly five million workers nationwide. Plus, 78 U.S. industries that each export over $1 billion a year in goods to TPP partners and employ nearly 12 million workers in 360,000 business establishments nationwide would fail to see improved market access if TPP is not passed.

“Further, the lost opportunities to increase growth and productivity in the U.S. economy are substantial if TPP is not passed,” the CEA said. “This would also prevent the United States from helping to shape trade in Asia to adhere to high standards and U.S. values.”

Another factor at play, the council said, is the potential that other bilateral and multilateral trade agreements would be concluded that would leave out the U.S., leading to further trade diversion, and provisions in TPP to level the playing field, including rules for labor, the environment, and state-owned enterprises would not go into effect, nor would the Joint Declaration by TPP countries to address currency manipulation and competitive devaluation that is contingent on TPP.

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