Jun 21 2015 at 11:40 AM
Updated Jun 21 2015 at 12:45 PM
Democrats' pressure on Obama undermines gains from TPP
US Congress has offered passive resistance to the Trans-Pacific Partnership, but it may not be a sign that the President Obama is offering to seriously reduce US trade barriers.
US President Barack Obama and Prime Minister Tony Abbott: both have to sell their voters on trade reform. Andrew Meares
by Alan Mitchell
Unfortunately, the passive resistance in the US Congress to the Trans-Pacific Partnership may not be a sign that the President Obama is offering to seriously reduce US trade barriers.
More likely, it is evidence of the reluctance of many Democrats to support any significant expansion of trade when US industry is being hollowed out.
With the high political hurdle and a real chance of rejection by Congress, Obama would have kept his negotiators on a pretty tight leash. But that may not have been tight enough.
The secrecy of the negotiations hides the extent to which the US negotiating position has changed. But almost certainly the potential gains from an agreement, which for most of the advanced economies were always small, are now even smaller.
OPTIMISTIC ASSUMPTION
Estimates of the gains were based on optimistic assumptions about what would be agreed, with only a modest allowance for the pressures on the politicians to protect their uncompetitive industries.
The Democrats, of course, are concerned about the impact of the TPP on jobs. That's perfectly understandable, but they are jumping the wrong way.
US voters and politicians are struggling to come to terms with more than just the permanent damage of the global financial crisis.
The US and other advanced economies also are adjusting to the impact of two economic revolutions: information technology-driven technological change and the doubling of the global workforce after China, India and Russia effectively joined the world economy.
Together these three emerging market economies are estimated to have added something like 1.5 billion workers to the global labour supply.
None of these countries will be a founding member of the TPP, but the dramatic growth of manufacturing in China and the other emerging market economies has put pressure on the jobs and incomes of low-skilled workers in all high-income economies.
Moreover, as the emerging market economies have expanded into high-tech manufacturing and services, highly trained professionals in the west also have begun to feel the heat.
DEFENSIVE REACTION
The instinctive reaction in the west has been defensive. Governments repeatedly promise to eschew protectionist measures but, where they can, they use gaps in the international trade rules to shelter their uncompetitive activities.
At the same time, their trade officials are sent off free trade agreement negotiations with instructions to demand more market access from their trading partners while giving away as little as possible themselves.
The US is no exception. The benefits of the prospective TPP deal have been explained to American voters almost entirely in terms of the expected increase in US exports.
There has been little or no discussion of the potential role of the TPP in facilitating the structural change that is necessary for the US to accommodate the industrial revolution in China and the emerging market economies.
Yet the main gains from trade come from that kind of adjustment, which sees economies specialising more in the things they do best.
The need for that adjustment can only increase. Technological change means that businesses can now locate their production anywhere to take advantage of the new abundance of low cost labour, while the IT revolution and heavy investment in education and training in the emerging market economies has extended the scope for relocation beyond manufacturing.
According to the OECD, as much as 15 to 20 per cent of total employment in services in the US, the EU-15 (the pre-2004 members of the European Union), Australia and Canada eventually could be subject to foreign outsourcing, or "offshoring" as it has come to be known.
TWO-WAY STREET
It will be a two-way street: the west cannot buy exports from the emerging market economies unless they buy our exports.
And they will. The growth of the middle class in the emerging market economies will provide gigantic new markets for west's goods and services.
Even in the hypothetical event that, to borrow an old song, "everything we can do they can do better", they will still buy the west's exports, because that's the way global trade works.
The leading US labour market economist Richard Freeman describes a good scenario as one in which the US and other advanced countries retain a "comparative advantage" in enough leading sectors or niches of sectors to continue as hubs in the global development of technology. At the same time, the world savings rate rises so that investment increases the stock of capital per worker and therefore labour productivity and wages. The US and the other advanced economies redistribute some of the growing income to their less skilled workers who can no longer compete without assistance in the global market.
But to build those leading sectors and niches, the advanced economies will have to specialise more.
Lower trade barriers and the increased flow of imports from the emerging market economies will allow them to do that.
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Chân thành cám ơn Quý Anh Chị ghé thăm "conbenho Nguyễn Hoài Trang Blog".
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