American manufacturers have been looking east for at least two generations. First came the rush to cut costs by manufacturing in China and other Asia Pacific locales. That mass exodus of work has helped fuel the remarkable rise of the middle class in Asian nations that now makes them so desirable as expanding markets for U.S. goods and services.
The U.S. wants to ensure that it is a key player in trade in that region, in part to counter the rising economic and military power of China. To do that, it has been engaged with 11 other countries in negotiating a wide-ranging trade pact called the Trans-Pacific Partnership Agreement designed to help open and strengthen these markets for U.S. businesses. The Obama administration has been negotiating TPP since 2010 and some hope those talks will be finished by the end of this year.
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The countries represented in the TPP talks represent more than a third of world GDP, notes Linda Dempsey, vice president, International Economic Affairs for the National Association of Manufacturers. Right now, she says, nearly 50% of U.S. manufacturing exports go to the 20 countries covered by free trade agreements, which represent just 9% of global GDP. TPP, she says, has the potential to "level the playing field" and make U.S. manufacturers as competitive in Asia as they are at home. Absent such agreements, she warns, U.S. manufacturers will face higher tariffs and be at an increasing disadvantage as other nations ink new deals.
On a trip last month to Japan, U.S. Chamber of Commerce President Thomas Donahue expressed the hopes of many in the business community for the treaty.
"Completing the TPP would pay huge dividends for America," Donahue said. "One study estimates it could boost U.S. exports by $124 billion by 2025, generating hundreds of thousands of American jobs. It also has the potential to strengthen our commercial, strategic and geopolitical ties across the region. It will send a message to the world that the United States is not going to sit on the sidelines. We're going to be in on the action."
In some ways, it's hard to argue that the U.S. is out of the action. The U.S. is already the world's biggest trader in merchandise, according to the World Trade Organization, with imports and exports totaling $3.74 trillion in 2011. But the problem is that the nation's imports and exports are wildly out of balance. The U.S. easily has the largest trade deficit on the planet, totaling $534.6 billion (more than $741 billion in goods alone) in 2012.
TPP advocates say it will promote U.S. exports and help protect businesses against intellectual property theft and other competitive threats. But trade policy critics such as economist Alan Tonelson of the U.S. Business and Industry Council argue there is a good chance that new accords will simply pour gasoline on an already raging fire.
The U.S. has free trade agreements with 20 nations. Through August, the U.S. has a combined deficit with these trading partners of more than $48 billion, including $20.6 billion with Canada and $36.6 billion with Mexico. Tonelson is especially concerned about the recent trade deal with South Korea, given that the monthly merchandise deficit since the agreement was ratified has tripled from $551 million to $1.68 billion.
"The Obama administration has told us the strategy it is following for TPP is the same strategy it used for the tightly closed Korean economy, for the so-called KORUS trade deal that went into effect in March 2012," Tonelson says. "If we get the same results from TPP that we got from KORUS, the U.S. trade deficit with the TPP countries will skyrocket."
Tonelson argues that TPP will ultimately fail because it does not address the primary issue with Asian trading partners.
"Whole national economies are structured to work in effect as one gigantic export subsidizer," Tonelson says. "So many economies of East Asia are mercantile by nature, and the main trade barriers are largely informal, not written down and built into the very structure of the economy. They cannot possibly be addressed by even the best-written trade deal that seeks to eliminate or reduce discrete, individual barriers. This is an approach that we have tried for decades, and it has failed every time."
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Will TPP open markets and help trim the U.S. trade deficit? It's too early to tell and much too late to be confident of success.