The Trans-Pacific Partnership (TPP) now awaiting ratification in the U.S. Congress may result in job losses and rising inequality, weakening rather than strengthening economic growth in the United States, according to a new GDAE Working Paper by GDAE Research Fellow Jeronim Capaldo, Alex Izurieta, and Jomo Kwame Sundaram. The authors also project employment losses and negligible benefits for growth in other participating countries.
[Jeronim Capaldo and Alex Izurieta with Jomo Kwame Sundaram| January 2016 |GDAE]
These findings contrast with widely cited projections of TPP’s effects which suggest GDP gains for all countries after ten years, varying from less than half a percentage point in the United States to 13 percent in Vietnam. However, those projections are based on unrealistic assumptions such as full employment and constant income distribution. Here, the authors employ a more realistic model that incorporates effects on employment and income distribution.
The authors highlight the following effects of TPP:
- TPP would generate net losses of GDP in the United States and Japan. For the United States, GDP is projected to be 0.54 percent lower than it would be without TPP, 10 years after the treaty enters into force. Japan’s GDP is projected to decrease 0.12 percent.
- Economic gains would be negligible for other participating countries – less than one percent over ten years for developed countries and less than three percent for developing countries. These projections corroborate previous findings that any TPP gains would be small for many countries.
- TPP would lead to employment losses in all countries, with a total of 771,000 lost jobs. The United States would be the hardest hit, with a loss of 448,000 jobs. Developing economies participating in the agreement would also suffer employment losses, as higher competitive pressures force them to curtail labor incomes and increase production for export.
- TPP would lead to higher inequality, as measured by changes in the labor share of national income. Competitive pressures on labor income, combined with employment losses, can be expected to push labor shares lower, redistributing income from labor to capital in all countries. In the United States, this would exacerbate a multi-decade downward trend.
- TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (3.77 percent) and employment (879,000) among non-TPP developed countries would be driven by losses in Europe, while developing country losses in GDP (5.24%) and employment (4.45 million) reflect projected losses in China and India.
These results come from the innovative, and more realistic, United Nations Global Policy Model (GPM), which GDAE operates in collaboration with UNCTAD, the UN body specialized in international trade and finance. A previous Working Paper employed the GPM to project the effects of the Trans-Atlantic Trade and Investment Partnership, raising concerns about the proposed agreement’s effects on employment and inequality. The TPP results contrast with mainstream models because those generally use versions of Computable General Equilibrium models (CGE) that exclude by assumption effects on employment.
This study contributes a much-needed economic assessment to the coming debates on TPP.