Peter Morici: Trade pact is a bad deal for workers

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Congress should not grant President Barack Obama authority to conclude another free-trade agreement in Asia. Such a deal would lower American wages and exacerbate income inequality.

[Reposted from the blog of Peter Morici  |  Peter Morici  |  June 12, 2015]

The Trans-Pacific Partnership would eliminate tariffs and lower other regulatory barriers to trade and investment among the United States, South Korea, Japan and nine other Pacific Rim nations.

If successful, China, India and several other nations could seek membership. Hence, the TPP has the potential to redefine the rules for international commerce in the most rapidly growing region of the international economy, but Obama has given ordinary workers good reason to believe he is not looking out for them.

Free-trade deals can permit Americans to earn higher wages by exporting more goods and services — like pharmaceuticals and software — that require highly skilled workers and R&D. Even workers displaced by imports could find better jobs if exports grew as much as imports and instigated faster growth with more emphasis on spending for skills-focused education.

In March 2012, Obama inaugurated a free-trade pact with South Korea and, in many ways, it provides a template for what we may expect from a broader TPP.

Imports from South Korea are up $3.6 billion, U.S. exports are down marginally and the U.S. trade deficit with the Asian nation has swelled to $5 billion. That free-trade deal alone has killed about 25,000 American jobs — mostly in high-paying manufacturing activities — and added to downward pressures on wages and worsened income inequality.

President Bill Clinton negotiated a complex bilateral deal to permit China’s entry into the World Trade Organization, but American companies like GM, GE and Microsoft still must manufacture, form joint-ventures with local companies and undertake product development in the Middle Kingdom — and American intellectual property still gets ripped off.

Campaigning in 2008, candidate Obama promised to fix problems like those, but he has been weak about confronting Chinese mercantilism, and the $350 billion bilateral trade deficit costs American workers at least 3 million jobs and greatly suppresses wages.

Over the years, China, South Korea and Japan have violated WTO and International Monetary Fund rules by purposefully undervaluing their currencies to subsidize exports and raise prices for otherwise competitive U.S. products in their markets.

Such currency manipulation would wipe out the benefits American businesses may expect from the TPP — just as it has done for bilateral deals struck with China, Japan and South Korea — by eliminating tariffs and reducing other barriers to trade.

Obama has refused to even formally acknowledge that those countries cheat on trade deals already in place by manipulating their currencies or to make strong rules to stop currency manipulation a negotiating goal for the TPP. The president has repeatedly claimed Asian nations won’t sign on to the TPP if it contains a discipline on currency manipulation.

No wonder, look at the advantage currency manipulation affords countries that cheat on the rules already in place.

Applying data from the World Bank, which calculates what national currencies should be worth in U.S. dollars to have comparable purchasing power, the yuan, won and yen currently appear to be at least 50 percent, 25 percent and 15 percent undervalued, respectively.

And those exchange rate practices compel other Asian trading nations to follow similar policies, lest they be shut out of markets by unfairly priced Chinese, Korean and Japanese goods. For example, India’s rupee is only about one-fourth its fair market value.

U.S. multinationals, like GE and IBM, would still profit from the TPP by moving production to Asia to advantage labor and other resources made cheaper by manipulated currencies, but ordinary working Americans would face more unfairly advantaged foreign competitors, unemployment and even lower wages.

As the president has framed the TPP negotiations, it is simply a bad deal for ordinary Americans.

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