|Editor’s Note: Martin Hutchinson discussed the issues below in our most recent “Saturday Spotlight” feature. Click here to read the full issue or watch Martin discuss the Trans-Pacific Partnership below.|
Hillary Clinton has come out against the Trans-Pacific Partnership (TPP), the signature achievement of her own party’s President, for whom she acted as Secretary of State for four years.
Of course, one understands the political thinking behind this. But it will undoubtedly make it more difficult for the Obama administration to get the treaty through the Senate.
What’s more, there’s a case against the treaty – though mostly not the case Clinton is making against it.
For her part, Hillary is locked in an unexpectedly tight race for the Democrat nomination for President against Senator Bernie Sanders (I-VT).
Clinton believes she needs the protectionist left in the unions as well as the Democrat party apparatus. Accordingly, she has denounced TPP as a giveaway to big business, with insufficient protections against the loss of American jobs.
By doing so, she has attacked a signature agreement of the Obama administration, which may limit the support she will get from President Obama in her struggle for the nomination.
And since her success in November 2016 will also depend on the voting public having a reasonably high opinion of the Obama administration’s achievements, she may have weakened her position, there, too. If the TPP is defeated, Obama will have nothing to show internationally other than the much-disputed Iran deal.
Manufacturing to Take a Loss
Nevertheless, as a believer in a free market economy, I’m distinctly unenthusiastic about TPP.
If it was truly a “free trade agreement,” I’d support it avidly. But given what it is, I’d rather see progress in the moribund Doha Round of global free trade talks as opposed to another regional deal, which inevitably tangles the rules of global trade further.
That said, the free trade elements in the TPP are very much delayed – we’re told that eliminating a 25% U.S. duty on light trucks, for example, will take place only over 25 years, an absurdly long period for such a simple change.
To some extent, compromises are inevitable. For example, U.S. environmental protections are to be extended to the TPP signatories, some of which, such as Vietnam and Malaysia, are by no means rich countries.
That does nothing to free up trade and adds hidden burdens to economies that may find it difficult to bear them, but it’s probably inevitable in a treaty negotiated by a Democrat administration.
However, the problems with TPP are bigger than this. The Congressional Research Service (CRS), in a March 2015 study, concluded that the TPP would benefit the United States by around $36 billion (0.19% of GDP). That’s normal for a free trade agreement – but in this case, it’s the net of two opposing figures.
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While U.S. agriculture will see no net gain and services will gain $79 billion, manufacturing will see a $44-billion loss from the agreement.
That should immediately raise doubts – manufacturing, not services, is the main source of high-wage, blue-collar jobs on which American workers depend.
When you look more closely, agriculture will gain little from access to Japan’s market, no doubt because the opening to that market is very limited and long delayed. U.S. manufacturing loses out because the various protections it has enjoyed will be eliminated, and it gains little in the way of new markets.
The big U.S. gain from the agreement is in services, where pharmaceutical companies will gain massively from extending U.S. patent protection. Additionally, Hollywood will gain from an extension of the lengthy copyrights of the 1998 Digital Millennium Copyright Act (DMCA) – which kept the 1928 Mickey Mouse cartoon in copyright until 2023 – to other TPP members. Finally, the software industry will gain from the blizzard of software patents.
But extending copyright and patent protections is not free trade. It increases rents received by a few companies at the expense of the consumer. Those rents may or may not be justified; I would, however, argue that if 15 years copyright was sufficient for the Earl of Clarendon’s 1703 History of the Great Rebellion, one of the great works of 17th century scholarship, it should be ample for Mickey Mouse.
Free trade benefits consumers by making goods cheaper. In most cases, consumers are the main beneficiaries of true free trade agreements. However, pharmaceutical patents notoriously increase the prices of drugs to consumers, sometimes to exorbitant levels, while software patents restrict access to software and slow its development.
Finally, the recent 30% price increase for many Disney World tickets, a large multiple of inflation, shows that consumers pay dearly for the exorbitantly extended copyrights of the DMCA.
One Thing Hillary Got Right
If TPP was a true free trade agreement, the CRS would indicate huge benefits for U.S. consumers as the main economic effect.
Instead, the main U.S. benefit is $79 billion in additional “services income,” mostly royalty payments for U.S. drug, entertainment, and software companies.
Of course, pharmaceutical, entertainment, and software companies are Americans too, and deserve to benefit from U.S. policy from time to time. But on balance – TPP appears to restrict trade rather than facilitate it. So Hillary’s right; Congress should probably reject it.