Why is President Obama making one last push for the TPP?

The White House is making one last push for passage of the Trans-Pacific Partnership agreement, most likely during the lame duck session of Congress, after the elections but before the end of the year. This is despite the fact that Democratic presidential nominee Hillary Clinton opposes the TPP, as did Bernie Sanders, her rival in the primary, and as do the majority of Democratic members of Congress.

Let’s review the basic facts. Growing imports of goods from low-wage, less-developed countries, which nearly tripled from 2.9 percent of GDP in 1989 to 8.4 percent in 2011 (as shown in Figure A, below), reduced the wages of the typical non-college educated worker in 2011 by “5.5 percent, or by roughly $1,800—for a full-time, full year worker earning the average wage for workers without a four-year college degree,” as shown by my colleague Josh Bivens.

Overall, there are nearly 100 million American workers without a 4-year degree. The wage losses suffered by this group likely amount to a full percentage point of GDP—roughly $180 billion per year. Crucially, trade theory and evidence indicate strongly that growing trade redistributes far more income than it creates. The modesty of net benefits from trade is highlighted by the U.S International Trade Commission report that recently estimated that the TPP would generate cumulative net gains of $57.3 billion over the next 16 years, or less than $4 billion per year.

Figure A

U.S. Imports from low-wage countries, 1989-2011

Year Share of U.S. GDP Billions of dollars 
1989 2.95% 166.6
1990 3.05% 182.5
1991 2.94% 181.7
1992 3.13% 205.0
1993 3.28% 225.8
1994 3.58% 261.4
1995 3.93% 301.3
1996 4.14% 335.1
1997 4.40% 379.0
1998 4.34% 394.7
1999 4.59% 443.8
2000 5.35% 550.7
2001 4.84% 514.2
2002 4.92% 540.3
2003 5.25% 604.0
2004 5.94% 728.6
2005 6.60% 864.1
2006 7.19% 996.6
2007 7.34% 1062.2
2008 7.98% 1173.9
2009 6.15% 886.5
2010 7.44% 1113.4
2011 8.36% 1297.3
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Source: EPI analysis of data from the U.S. International Trade Commission Trade DataWeb, and the Bureau of Economic Analysis.

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Workers without a 4-year degree constitute a bit less than 70 percent of the overall workforce, but three-quarters of black workers (75.5 percent) and more than four-fifths (85.0 percent) of Hispanic workers do not have a 4-year degree. Because black and Hispanic workers are less likely than white workers to have 4-year degrees, they are more likely to be on the losing end of growing trade.

Importantly, this year’s election has highlighted the importance of non-white working class voters for Democratic success at the presidential level. Given the modesty of net benefits and the large, regressive redistribution of income created by growing trade flows, it is puzzling why TPP is such a priority for the Obama administration—especially when it, like trade agreements before, is quite likely to do disproportionate harm to the people who make up his and his party’s political base. Even more puzzling is why there are no measures accompanying the TPP that would provide compensation for workers on the losing end (who are, again, disproportionately black and, Hispanic) at anything like the scale of the losses they will incur as a result of this terribly designed trade and investment deal.

Figure B

Black and Hispanic workers hardest hit by imports from low wage countries

Race/Ethicity Share of workers without college education
White 62.4%
Black 75.5%
Hispanic 85.0%
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Source: EPI analysis of Current Population Survey microdata.

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Six of the twelve members of the TPP (Malaysia, Mexico, Peru, Vietnam, Chile, and Brunei) are low-wage, developing countries, and if the TPP leads to expanding trade with these countries it will contribute to a continuing growth of imports and growing downward pressure on the wages of non-college educated workers. In some respects, the TPP is worse than NAFTA and other previous trade and investment deals, which included Mexico and several other TPP partners. It significantly weakens local content regulations, which will create a huge back door through which these countries can import parts and components (and semi-finished final products) from large, non-member low-wage countries such as China, Myanmar, and North Korea, and re-export those products to the United States, duty free.

So why is President Obama so determined to force this agreement, when it will do disproportionate harm to workers in the very coalition that elected him and when it is opposed by most of his own party? One claim is that the deal is mostly about foreign policy, not economics. The case for this strikes me, and others, such as former Reagan Administration trade counsel Clyde Prestowitz as thin. China is and will remain the largest and most important trading partner of all countries in the region, and its tremendous financial resources will carry much more clout than the United States, or any standards included in the TPP. On the economic merits, the likely effects of the deal are clear: continued upward redistribution of income and continued failure to address trade imbalances which hinder global economic growth.

Most Democrats in Congress also find the (often-shifting) rationales for the TPP similarly unconvincing. The deal is possible “only because of Mr. Obama’s delicate alliance with the Republicans who control Congress,” in the carefully parsed language of the New York Times. Approval of the TPP will likely depend to a large degree on the support of lame duck members of Congress, who are retiring or will be voted out of office in November, and thus have nothing to lose. If Clinton wins, and the Democrats regain control of the Senate, then the fate of this fundamentally flawed piece of Mr. Obama’s legacy could well be determined by his alliance with politicians who opposed every progressive step he took in his eight years in office, especially in the Senate. It would be a terrible irony if Mr. Obama’s last official legislative act is to sign the TPP, a huge give-away to multinational corporations. Surely, he can and should do better.