How Will TPP Affect the Economy (And the World)?

Ryan Bhandari  |

If you are even remotely interested in politics, you have probably heard something about the Trans Pacific Partnership trade deal driving a wedge between President Obama and Congressional Democrats. This past Friday, House Democrats blocked a provision that would have granted Obama trade promotion authority (TPA). TPA essentially gives Obama the authority to negotiate the trade agreement independently with other countries and then present the bill to Congress for a simple up or down vote – with no chance for amendments.

But while Democrats have been fighting with the president on this issue, against all odds, Republicans have been supporting him.  

Assuming then that the TPP becomes law, what would be the likely effects of the new trade agreement on the economy and on America’s influence throughout the world?

What is the TPP?

Before proceeding any further, it’s important to give a brief description of what the TPP actually is. The Trans-Pacific Partnership is a trade agreement between twelve countries (including the United States, Canada, Mexico, Australia, and Japan) that would open free trade between all member countries.

Beyond that, the details of the deal are extremely limited. This is part of the reason House Democrats are reluctant give Obama TPA. They have no idea what’s actually in the agreement and they want to make sure there aren’t provisions in the agreement that diminishes environmental regulations or worker protections. But even if there are provisions in the agreement that hurt workers, it’s unlikely to have a substantial impact on domestic employment because…

The Economic Impact of the TPP is Exaggerated (On Both Sides of the Aisle)

Progressives and labor unions rallying against the bill think that it will be the end of manufacturing jobs and worker protections in the United States. Conservatives and corporations think the bill will spur tremendous economic growth in the country. Neither is correct.

Two of the nations leading economists, Paul Krugman(on the left) and Nicholas Gregory Mankiw(on the right), both agree that the trade agreement will increase domestic income of all the nations involved by 0.5% by 2025. In the United States, this amounts to a little over $80 billion, certainly nothing to scoff at, but nothing that will spark tremendous economic growth. The problem is that trade at this point is already relatively free throughout much of the world. Borders have been liberalized. The average good traded between these twelve countries has only a 1.4% tariff on it. There just isn’t a whole lot to be gained by removing these tariffs.

Growth prospects may be unimpressive, but there are other aspects to consider – primarily the interests of US businesses and multinational corporations. First, agricultural producers have a lot to gain from this deal. The United States currently produces a surplus of food, and much of that food goes to waste. Opening up international markets could be a huge boon for the agricultural industry.

There are also intellectual property rights. The US is trying to enhance protections for pharmaceutical drugs and even Hollywood movies. In many of the developing countries that are part of this agreement, (Vietnam, Malaysia, Brunei) knock-off drugs and films are sold to consumers. This ultimately cuts into the profits of American pharmaceutical and entertainment companies. The free trade agreement would put much stricter regulations in place in these countries, ensuring this does not continue.

A Stance Against China

Many of the potential benefits from this trade agreement concern the relationship the United States has with China. Importantly, China is not part of this trade agreement, but they are working on their own trade agreement in the region, with many of the same countries in our trade agreement. China also won’t push for the environmental regulations and worker protections the United States is currently pushing for.

This is an opportunity for the United States to expand its sphere of influence in that region and prevent these countries from falling under China’s influence. With the US/Chinese relationship under the stress it is right now, this could be a huge opportunity to stick it to China, so to speak.

What’s The Downside?

Like any economic policy, there are positive and negative aspects to the TPP. Many of those negative aspects have voiced by leading progressive economists like Joseph Stiglitz. Stiglitz, who penned an op-ed for the New York Times, believes that the benefits do not outweigh the negative aspects of the trade agreement.

Stiglitz fears that the gains on income from the free trade agreement will go to the elite.  This is a very valid concern, and since trade agreements never increase labor’s position in bargaining power, it is likely that much of the gains from this trade agreement will go the rich.

More importantly though, Stiglitz is worried that corporations will convince the TPP countries to set minimal regulatory standards. Trade agreements rarely (if ever) lead to higher regulatory standards across all countries – unless of course the regulatory standard involves patent laws, which serve the interests of corporations.

Why All the Secrecy?

Ultimately, the mystery surrounding these negotiations makes it difficult to take a stance on the issue. The only way we’ve learned anything substantial about the trade deal is through leaked documents.

Regardless though, it appears that Congress’ attempts to prevent Obama from passing the TPA are misguided. It is too difficult to negotiate a trade agreement if every part of the negotiation has to get Congressional approval. Congress has shown how woefully inept they are year after year.

At this juncture, it makes the most sense to grant Obama the authority to negotiate this trade agreement. Congressional Democrats have always supported the president of the United States. Now is not the time to stop. Over the past six years, Obama has earned the faith of Democrats. They should believe that he will respect the needs of workers and environmental regulations, and not deregulate the country to appease the whims of corporate America.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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