December 11, 2015
Why is it so hard for reporters to simply tell us what people say instead of what they think? I’m sure many of these reporters are very insightful, but the reality is they do not know what people think, it is just their speculation.
Therefore, when a Washington Post article on the prospects in Congress for the Trans-Pacific Partnership (TPP) told readers:
“Obama has said the pact is central to his economic agenda, but it is also viewed inside the administration as an important foreign policy initiative to balance the growing economic clout of China.”
The Washington Post does not know that the administration actually views the TPP as an important foreign policy initiative, it knows that people in the administration make this claim. While the claim may actually reflect their thinking, it is also possible that they would seek to sell a deal with few obvious economic benefits for most people in the United States on foreign policy grounds. Politicians sometimes do things like that.
There are a number of other comments in the piece that are not quite right. At one point it refers to proponents of the TPP as “trade supporters.” This is not accurate. Trade supporters might well oppose the deal because of the increased protectionism in the form of stronger copyright and patent protections. These will raise the price of drugs and other affected products by several thousand percent above the free market price.
Trade supporters may also be unhappy with the TPP since it does nothing to address currency management by parties to the deal. Through currency management countries can prevent the currency market from adjusting, thereby maintaining large trade surpluses that would otherwise not be possible. Using intervention to keep down the value of a currency, as is currently done by many countries, has the same effect as imposing a tariff on all imports and having subsidies for all exports. The Obama administration chose not to pursue this issue in the TPP.
For these reasons, many supporters of trade may oppose the TPP. It would have been more accurate to describe the people referred to in the piece as “trade deal” or TPP supporters.
It also describes the TPP as “largest such trade deal ever considered.” It is not clear on what basis it has made this determination. The United States already has trade pacts with most of the countries in the TPP, so the effect of the TPP in reducing trade barriers further with these countries will be very little. The estimates of the impact on growth even by the strongest proponents are very limited, only about 0.03 percentage points annually. This is considerably smaller than the estimates produced for the gains from the Uruguay round of the GATT that established the WTO. (This estimate does not include any costs associated with increased patent and copyright protection.)
It’s also worth noting that the ending of 18,000 tariffs on U.S. exports repeatedly cited by the administration as a way of selling the pact almost certainly includes tariffs that were already being phased out in other trade agreements. It is also worth noting that the vast majority of these 18,000 tariffs would be tiny taxes on incredibly narrow categories of exports that would have almost no visible economic impact. An increase in the value of the dollar by just 1.0 percent would have a negative effect on our exports that would dwarf the impact of the elimination of these 18,000 tariffs.
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