The Trade-Agreements-Are-Good-for-You Ideology

Two years ago, my colleague David Rosnick put out a paper that analyzed the impact of recent patterns in trade, based on research showing that trade both tended to promote growth but also worsen inequality by reducing wages for those at the middle and bottom of the wage distribution. The paper concluded that for large segments of the workforce, the inequality effect exceeded any benefits from overall growth, making them net losers from growth.

This paper was cited in a recent Hillcolumn by Raoul Lowery Contreras, who pronounced it "baloney."

This is characteristic of the sorts of arguments that we are getting in favor of the Trans-Pacific Partnership (TPP) as its proponents apparently fear they lack the votes to get the necessary fast-track authority through Congress.

Note the nature of Contreras' argument. He didn't challenge the research Rosnick used as the basis for his analysis, nor did he show that Rosnick had done his calculations incorrectly. He just denounced it because he apparently doesn't like the conclusion.

If Rosnick's argument is hard to follow, imagine that the TPP made it much easier for foreign doctors to train to U.S. standards and practice in the United States like doctors who were born and trained here. Suppose we had a large enough influx of foreign doctors to push their average pay down to European levels. Instead of getting around $250,000 a year, they would earn about $125,000. This would save the public close to $100 billion a year in doctors' fees, but it would mean lower incomes for doctors. That is essentially the story faced by tens of millions of workers without college degrees who have been put in direct competition with low-paid workers in the developing world.

Contreras is not the only TPP proponent using ad hominems rather than arguments to push their case. Last week, USA Today denounced unions who opposed the TPP as "fact-free" because they believed trade had cost manufacturing jobs. The editorial had originally used the wrong table from the Commerce Department to tell readers that manufacturing output had doubled since 1997. They later corrected their error to report that output had increased by just 40 percent, considerably slower than in the prior decade, but left their conclusion and criticisms of unions unchanged.

In the same vein, President Obama criticized Sen. Elizabeth Warren (D-Mass.) for suggesting that the TPP and subsequent trade agreements that would receive fast-track treatment could undermine efforts at financial regulation like Dodd-Frank. Obama dismissed such concerns as the hypothetical musings of a former law professor.

In fact, Warren's concerns were far from hypothetical. The Huffington Post reported last week that the Canadian financial industry had complained to the Treasury Department as far back as 2011 that the Volcker Rule would violate provisions of NAFTA. In other words, potential conflicts between trade agreements and financial regulation already exist; they are not the invention of Warren's imagination.

The reality about the TPP is that the trade aspects are less important for the simple reason that most of the traditional trade barriers in the forms of tariffs and quotas are already small. Most of the countries in the TPP already have trade pacts with the U.S. For this reason, the usual arguments about the benefits of free trade do not apply.

The deal is primarily about putting in place a business friendly structure of regulation. This is likely to create a situation in which governments at all levels have to worry that labor, environmental, and consumer regulation could be sanctioned under the terms of the TPP. And the sanctioning body will not be the U.S. legal system, but instead special investor-state dispute settlement tribunals that are only open to foreign investors. Their decisions are also not subject to appeal.

In addition, the TPP will also be very much protectionist in the areas of patents and copyrights, making these protections stronger and longer. Such protections can raise the price of products by several thousand percent above their free market price. The higher prices for a single blockbuster drug like Sovaldi can easily exceed the aggregate benefits from the reduction of trade barriers in other sectors.

There are some very serious arguments against the TPP. It's not surprising that TPP proponents would prefer to call people names rather than engage in debate on the deal.