October 10, 2015
David Brooks is shocked, shocked to find out that political considerations might affect Hillary Clinton’s stand on the Trans-Pacific Partnership (TPP) in the presidential campaign. Brooks goes through the basic story. Yes, Clinton had been a supporter of the TPP in the Obama administration, but now Brooks tells us that Clinton has changed her position because she’ll say what “she needs to say now to become Bernie Sanders in a pantsuit.”
Let me give a brief sidebar on the sexism here. Yes, Hillary Clinton is a woman. Does that mean it is not possible to discuss her political positions without referring to what she wears or how she looks?
I’ll skip over Brooks’ general complaint about how Clinton has changed her positions on other issues. I want to talk about the TPP.
Brooks has apparently become a big humanitarian worried about the plight of people in the developing world.
“Third, there’s the humanitarian issue. Clinton once supported the Pacific trade deal for good reason. According to a report from the Peterson Institute for International Economics, the deal would bolster U.S. gross domestic product growth and jobs over the next decade. It would lift Malaysian growth by 6.6 percent and Vietnamese growth by 14 percent. It would also build a solid Asian alliance to balance Chinese hegemony. If Clinton’s flip-flop ends up sinking the deal, she will have helped sentence millions of people to further poverty and destabilized the world’s most dynamic region.”
That sounds pretty awful. But before we worry too much about the millions of people who Secretary Clinton has sentenced to poverty in Malaysia and Vietnam, it is worth looking at these numbers a bit more closely. First, Brooks meant GDP, not growth. When the benefits of the TPP are fully realized in about a dozen years, the report projects that Malaysia’s GDP will be about 6.6 percent higher and Vietnam’s GDP will be about 14 percent higher.
Second, the vast majority of these projected gains do not come from anything that the United States or the other TPP countries are giving Malaysia and Vietnam, they come from reducing their own tariff and other trade barriers. This is almost always the story with trade agreements. In the standard modeling, tariffs are distortionary taxes. If you reduce or eliminate them, your country will benefit even if no other country has made any change in their own barriers.
This is why in the Peterson Institute study the countries with the largest tariff barriers are projected to gain the most. To sell the TPP, the Obama administration has made a big point of touting the fact that the other TPP countries will lower their tariffs on average by more than us. This means that the other countries will be the bigger gainers according to standard trade theory. The Obama administration economists all know this fact, but they are betting that the reporters and columnists who write on the TPP do not.
The reason that countries don’t generally lower their trade barriers unilaterally is that powerful political interests typically stand behind these barriers. The prospect of gaining access to other markets can either buy off these interests or create powerful interests on the other side, who will push for a deal that includes lower tariff barriers.
In this story, if the TPP is not the specific mechanism that gets Malaysia and Vietnam to lower their tariff barriers, it is virtually certain they will sign some other trade pact (maybe with China) that leads to comparable tariff reductions. In other words, we don’t have to worry about millions of people being subjected to poverty in these countries because Hillary Clinton didn’t support the TPP.
However, there is more to the story. The Peterson Institute study does not include any estimates of the negative impact that these countries will feel from paying more money for patent and copyright protected material. A major purpose of this deal was to increase these forms of protectionism. The United States wants the other countries in the TPP to pay more for their drugs, their fertilizer and pesticide, and for copyright protected material.
As a result of the TPP, drugs may sell for several thousand percent more in Malaysia and Vietnam than if they could buy them at their generic price. For example, generic versions of the Hepatitis C drug Sovaldi are available in India for less than $1000 a treatment. The same drug sell for $84,000 a treatment in the United States. The United States spends over $400 billion a year on drugs (2.2 percent of GDP). It would likely pay less than one-tenth this amount if drugs were sold in a free market without patent and related protections.
In addition to the health costs, the economic costs of imposing these protectionist barriers on relatively poor countries like Malaysia and Vietnam are likely to be enormous. New Zealand, a country that already has U.S.-type copyright law, has projected that extending the duration of copyrights from 50 years to 70 years, as required under the TPP, would cost it almost 0.13 percent of GDP annually. This is the equivalent of more than $23 billion a year in the United States.
Given that this is relatively small expansion of copyright protection in a country that already has extensive protection, the implication is that the full set of protections in the TPP are likely to be quite costly to poor countries that do not have a very well developed set of patent and copyright protections in place. In short, it would be nice to see David Brooks carry through on his new found commitment to humanitarianism, although it may take him in the opposite direction on the TPP.
Note: corrections made, thanks LTR.
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