Trade Pact May Hurt U.S. Factory Jobs

factory-worker

A new study by the Peterson Institute for International Economics delivers an uneven forecast concerning the planned Trans-Pacific Partnership (TPP) trade pact. The pact’s main costs to the U.S. are likely to be reduced job growth for U.S. manufacturers, greater job churn, and higher job-change expenses for some workers. On a more positive note, the TPP should pour another $131 billion into annual incomes (not adjusted for inflation) and increase annual exports by $357 billion over the next 14 years.

Worldwide annual income gains are expected to grow by $492 billion from now through 2030.

Debating the Pact

The TPP is a trade agreement negotiated by 12-countries in or with access to the Pacific region, including Japan and the U.S. (but excluding China). The pact is currently under consideration in Congress. A vote is anticipated later this year. In the Washington debate, the Democrats are afraid of an adverse impact upon workers, but Republicans approve of the pact overwhelmingly.

Professors M. Plummer of Johns Hopkins University and P. Petri of Brandeis International Business School, the authors of the new study, are of the opinion that the trade agreement will not have much effect upon overall employment levels in the U.S. However, the pact will affect some sectors more than others. One hard-hit sector will be U.S. manufacturing, which will experience about a 20 percent slowdown in job rate growth. This will be due to less expensive imports from Vietnam and other Asian nations. The jobs lost to cheaper imports will surpass the number of jobs gained by increased U.S. exports that result from the pact.

A Mixed Bag

The goal of the TPP is to cut tariffs and other barriers to global trade. Trade barriers shield native industries from the full burden of competition from abroad, and removing the barriers may motivate workers to seek different jobs in more competitive industries, a practice called “churn.” The disadvantage of churn is that it unduly affects workers who are less skilled or older, and who work in regions of the nation that are experiencing economic problems, because those regions have jobs that are the most insecure.

The study forecasts the disappearance of approximately 53,700 additional U.S. manufacturing jobs each year through 2030, although it’s reasonable to assume that a like number of new jobs in other industries will become available annually. However, the indirect impact on vendors, suppliers, and others should cause employee job changes in the U.S. to exceed 100,000 annually, about 0.2 percent of total job churn in this country.

“The benefits of the TPP to the U.S. economy will greatly outweigh adjustment costs, and that economy-wide price and employment consequences will be limited,” according to the study authors.

Washington Sausage-Making

The U.S. economy has seen manufacturing jobs fall to about 10 percent of total jobs, and any further loss of job in this sector has garnered the general opposition of unions and labor groups. Those in favor of the TPP, including the president, have praised the pact’s rules concerning labor and the environment. These new rules will not allow signatories to disregard worker welfare and pollution issues. Other proponents, such as the U.S. Chamber of Commerce and the farm lobby, trumpet the boost the pact will give to export markets for good and services, including Internet-based businesses. Before Congress agrees to the pact, expect to see some wheeling-dealing and plenty of debate.