USITC Report Reveals TPP Will Shrink US Manufacturing

USITC Report Reveals TPP Will Shrink US Manufacturing

Government report estimates TPP will result in U.S. manufacturing trade deficit increasing by $24 billion.

On May 18, 2016, the U.S. International Trade Commission (USITC)  released its report, “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” relative to the agreement  that President Obama signed in February with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The USITC analysis concedes that the TPP will cause manufacturing to shrink in terms of employment, output and share of the U.S. economy. Our manufacturing trade deficit will become worse.

Reaction to the USITC report has been mixed at best. U.S. Chamber Executive Vice President and Head of International Affairs Myron Brilliant welcomed the release of the USITC report on the likely impact of the TPP, stating:

“While we have yet to fully digest the ITC’s assessment, the report at first glance provides substantive support for the Chamber’s view that the TPP is in our national economic interest. By eliminating thousands of tariffs and other barriers to the export of U.S.-made goods and services, the TPP will create new opportunities for American workers, farmers, ranchers, innovators, and companies."

On the other side of the spectrum, AFL-CIO President Richard Trumka issued a statement, which in part said, "This ITC report is so damaging that any reasonable observer would have to wonder why the administration or Congress would spend even one more day trying to turn this disastrous proposal into a reality. Even though it's based on unrealistic assumptions, the report could not even produce a positive result for U.S. manufacturing and U.S. workers. One of many shockers is just how meager the purported benefits of the TPP are. A mere .15% of GDP growth over 15 years is laughably small…"

The USITC analysis concedes that the TPP will cause manufacturing to shrink in terms of employment, output and share of the U.S. economy. Our manufacturing trade deficit will become worse.  

 

The Politico Morning Trade blog of Friday, May 20, 2016 included this rebuttal: “FROMAN FIRES BACK: U.S. Trade Representative Michael Froman continued his effort to capitalize on the ITC report. Speaking to business owners by telephone Thursday, the top U.S. trade official pointed out that the independent commission ‘conservatively’ estimated the TPP would boost both U.S. exports and national income by $57 billion by 2032 - gains that would continue annually.

"This was really the president's direction, to make sure we're doing trade right," Froman said. "And that meant making sure the trade agreement worked for American workers, and we think we've achieved that in this agreement…Froman said the study focused heavily on tariffs and didn't project the economic benefits of other major parts of the agreement, including rules on state-owned enterprises, labor and the environment."

Coalition for a Prosperous America CEO Michael Stumo participated on a "listen only" basis during the business group conference call on May 20, 2016. Afterward, he commented on his blog, "Despite the fact that the report nullified Froman's entire economic case for the TPP, you would never know it from his talk. Froman created a parallel universe which was enabled by the Business Forward group sponsoring the call."

Let us consider some of the highlights discussed in the 792-page report. The Executive Summary explains that the USITC "used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP….The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy" by year 15 [2032]." The main findings were:

  • U.S. annual real income would be $57.3 billion (0.23%) higher than the baseline projections (which statistically means zero growth).
  • Real GDP would be $42.7 billion (0.15%) higher (again, statistically zero).
  • Employment would be 0.07% higher (128,000 full-time equivalents).
  • U.S. exports and U.S. imports would be $27.2 billion (1.0%) and $48.9 billion (1.1%) higher, respectively, relative to baseline projections.
  • U.S. exports to new FTA partners would grow by $34.6 billion (18.7%).
  • U.S. imports from those countries would grow by $23.4 billion (10.4%).
  • Output in manufacturing, natural resources and energy would be $10.8 billion (0.1%) lower with the TPP than without the agreement.

Do you notice that the first four projections are less than 1%? Our economy has been limping along at only 1.5% growth in GDP, which is considered terrible. Yet, the TPP is only estimated to increase GDP by 0.15% in 15 years, or 0.01% each year. How could anyone be excited about this level of growth? For the first time, the USITC projected a worsening trade deficit with the world, which nullifies any meager net export benefit with new TPP countries. Page 21 admits that the overall U. S. trade deficit will worsen by $21.7B.

The Coalition for a Prosperous America released a flyer, "USITC Report: No Economic Upside to Trans-Pacific Partnership - Manufacturing Decline and Worsened Trade Performance" that states, "TPP Will Only Create 128,000 Jobs in 15 Years. That’s less than the 160,000 jobs created in April 2016…The U.S. International Trade Commission projects increased national income less than one quarter of one percent [0.23%] - well within the margin of error and a statiscally meaningless growth over 15 years."

The flyer points out that "the report is still too optimistic because it makes these false assumptions:

  • TPP countries will not manipulate currency
  • Job losers will immediately gain new jobs with no transition costs
  • TPP countries will stop all mercantilistic state-capitalism strategies"

Returning to the rosy projections, the USITC report states, "Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections: Output would be $10.0 billion, or 0.5%, higher by year 15." That is about equal to just one-year's worth of sorghum production!

The executive summary states that the services sector represents the largest share of the U.S. economy, and it would expand the most:

  • "U.S. imports of services would be 1.2% higher
  • U.S. exports of services would be 0.6% higher
  • Services sector would have a gain of $42.3 billion (0.1%) in output
  • Employment would be 0.1% higher."

If the service sector is supposed to expand the most and it is only 0.1%, why does page 34 state that the services trade balance will worsen by $2.2B? This doesn't sound good to me, especially when all of the projected benefits of past agreements were proved to be way too optimistic.

Chapter 4 discusses the impact on Manufactured Goods and Natural Resource and Energy Products. The introduction states, "The TPP Agreement is likely to have a limited impact on U.S. production and trade of manufactured goods and natural resource and energy (MNRE) products. The U.S. manufacturing sector is already more liberalized than other sectors, such as agriculture and services, and duties are generally low." This means that because duties are already low, the TPP will be less beneficial to the manufacturing sector.

Even with the "most optimistic possible” scenario for its projections, you noticed above that "Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1%) lower with the TPP than without the agreement."

This means that U.S. manufacturing will decline, and the manufacturing trade deficit will worsen by $24B (pages 30-31). Manufacturing employment will decrease by 0.2% (0.2% is 240,000 workers based on 12 million manufacturing employment in 2013). Obviously, the 128,000 jobs the TPP is supposed to create in 15 years will not be the higher paying manufacturing jobs.

Chapter 4 also "examines in more depth five sectors for which there will be significant U.S. trade liberalization with the full implementation of TPP: (1) passenger vehicles; (2) textiles and apparel; (3) footwear; (4) chemicals; and (5) titanium metal."

Passenger Vehicles: Buried in 40 pages of discussion, the report states that "Overall U.S. passenger vehicle exports would increase by more than 2% ($2.9 billion), and parts exports would increase by 1.5% ($2.1 billion) by year 30, relative to the baseline estimate." However, the report states on page 232:

"U.S. passenger vehicle imports would increase by $4.3 billion above the baseline upon full implementation of the agreement (table 4.15). Imports from Japan would increase by $1.6 billion, and imports from NAFTA partners would increase by $1.8 billion, making up the majority of the increase. Parts imports would increase by $4.5 billion, with imports from NAFTA partners increasing by $5.5 billion." (page 249) 

Textiles: "TPP would result in a 1.4% ($1.9 billion) increase in U.S. imports of apparel over the 2032 baseline (i.e., expected level of imports in 2032 without TPP), and a 0.3% ($10 million) increase in U.S. exports." (page 254)

Footwear: "…U.S. imports from all TPP countries would rise by $1.6 billion (23.4%). Most of this increase would be accounted for by imports of footwear from Vietnam, the second-largest supplier overall and the biggest TPP supplier of footwear to the U.S. market." (pages 272-273)

Chemicals: "…U.S. exports of chemical products, including pharmaceuticals, would be $1.9 billion (0.7%) higher than 2032 baseline estimates and U.S. imports would be $5.3 billion (1.3%) higher than the baseline, due in part to tariff reductions." (page 284)  

Titanium: The most significant detrimental effect of the TPP would be on the titanium industry. The report states, "U.S. titanium metal imports from TPP members, according to Commission estimates, would likely increase by $202.1 million (109.7%) as compared to the 2032 baseline. U.S. output would decrease by $202.4 million (1.2%) and employment would similarly decline by 1.3%, as compared to the 2032 baseline. Japan is the principal source of U.S. titanium imports, despite a 15% U.S. import duty on both unwrought titanium (i.e., titanium sponge, ingot, billet, and powders) and wrought titanium (e.g., bars, sheets, and tubes), and would benefit the most from the removal of duties. U.S. exports of titanium would be slightly lower—other TPP members already apply low or zero duties on imports of these products." (pages 292-293)

Since all other above industry sectors would be adversely affected by the TPP, it strengthens my opposition to it being approved by Congress. If you work in the manufacturing industry, I strongly recommend that you contact your Congressional representative and urge them to oppose approval of the TPP. We don't need a further decline of U.S. manufacturing and more loss of manufacturing jobs!

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