[One image in on-line article showing the Ottawa Delta Hotel as the
backdrop as hosting secret trade deal meeting.]
Truth: The First Casualty in Trade Debates
Monday, 07 November 2016 00:00
By Dean Baker, Truthout | Op-Ed
As the country prepares for the election this week, we should also be
prepared for the day after the election. President Obama has indicated
that he wants one last stab at pushing the Trans-Pacific Partnership
(TPP) through Congress before leaving office. In preparation for this
push he is already lining up the elite policy types (you know, the folks
that couldn't see an $8 trillion housing bubble) in order to convince
the public that we really, really need the TPP.
One part of the story that has been circulating widely is that trade is
falling. This is supposed to presage an economic crisis, or at least
slower growth. As the story goes, expanded trade supports growth. In the
1930s, trade fell and we got a worldwide depression, so we better not
let that happen again.
The nature of the link between trade and growth is questionable, clearly
causation goes both ways, but it is worth pointing out that the basic
story is wrong. To pick a prominent example, a New York Times editorial
last week told readers: "The total value of American imports and exports
fell by more than $200 billion last year; they've fallen by an
additional $470 billion in the first nine months of this year. Sluggish
growth is both a cause and a result of this slowdown."
While the dollar value of US trade did fall in 2015 as the NYT claims
(it's not clear where the $470 billion for 2016 came from), the actual
volume of trade increased both years. Using constant 2009 dollars, which
control for price changes, trade increased by $2.3 billion from 2014 to
2015. It rose by $63 billion in the first nine months of 2016.
The 2015 growth figure is certainly slow, but it is not the decline
widely being touted by those pushing for the TPP. The reason for the
difference is that the price of oil and other commodities has plummeted.
If we import oil at $50 a barrel we spend half as much on imported oil
as when it sells for $100 a barrel. While there are serious
environmental reasons not to be happy about low oil prices, it does not
translate into the economic crisis that the proponents of the TPP are
trying to paint.
The more general economic argument for the TPP actually is not very
different from claiming we face an economic crisis because of falling
oil prices. The TPP actually does little to reduce formal trade barriers
like tariffs and quotas primarily because these are already very low in
most cases. The US already has trade deals with six of the 11 other
countries in the pact.
The TPP is mostly about setting up a business-friendly structure of
regulation, including a system of extra-judicial tribunals that
exclusively benefit foreign investors. An important part of this
regulatory structure is the strengthening of patents, copyrights and
related types of intellectual property claims. These forms of
protectionism are equivalent to tariffs of several thousand percent,
often raising the price of the protected items by a factor of a hundred
To take one prominent example, the Hepatitis C drug Sovaldi has a list
price in the United States of $84,000 for a three-month course of
treatment. A high quality generic version is available in India for $200.
This gap in prices matters hugely when we talk about the volume of trade
flows. Suppose that 1 billion people in China use Microsoft's Windows
operating system. If we make them all pay $50 for each system then this
is $50 billion in US exports to China. Now suppose that everyone in
China is able to use Windows at no cost. In this case we have $50
billion less in exports, but we still have 1 billion people in China
getting the benefit of the Windows operating system.
By making people pay more for ideas, the TPP will increase the volume of
world trade. But, it is a huge stretch to argue that this is somehow
good for economic growth or the people who will have to pay more for
prescription drugs, software and other protected items. (Yes, we need
mechanisms for funding research, but there are more efficient routes.)
Anyhow, this is the nature of the arguments that we can expect to see in
coming weeks if President Obama decides to push ahead on the TPP. If
people need more convincing on the depths to which proponents of TPP
will stoop to push the deal, consider this Washington Post editorial
from 2007. The piece, which condemned the Democratic presidential
candidates for criticizing the North American Free Trade Agreement
(NAFTA), told readers, "Mexico's gross domestic product, now more than
$875 billion, has more than quadrupled since 1987."
If Mexico's GDP had in fact quadrupled since 1987 it would have indeed
been impressive. It would have implied an annual growth rate of 7
percent over the prior 20 years, a pace almost no country except China
has maintained. (The use of 1987 as a base year is peculiar, since NAFTA
took effect in 1994.) Unfortunately it is not true, according to IMF
data, Mexico's GDP increased by just 86 percent over this period.
This Trumpian fabrication is the sort of game-playing we should expect
from the proponents of TPP. There is a lot of money at stake in getting
Congress to approve the deal and they have no intention of letting the
truth get in the way.
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