What Does the Trans Pacific Partnership Mean for Manufacturing? Pt.1

Written by: Farah Diba
Written by: Farah Yamini

Given the vast reach of the welding profession in industries as varied as auto manufacturing, construction, jewelry, and aerospace, welding professionals will have much to gain or lose in the passage of the Trans Pacific Partnership (TPP) — depending on who you ask. The TPP is an ambitious free trade agreement between 12 nations with Pacific borders spanning the entire globe. These countries lie in every direction, near and far to us: to the north, Canada; to the south, Mexico, Peru, and Chile; to the east, Japan, Vietnam, Malaysia, Brunei, Singapore, Australia, and New Zealand.

Supporters on both sides of the aisle present the TPP as economically promising and socially progressive. For example, the partnership would create a cooperative market of 800 million, double that of the European Union’s. The agreement also promises to limit unfair economic practices like sweat shops through cooperation on minimum wages across all 12 countries. Moreover, the TPP would protect local economies by requiring bigger corporations like Toyota to use a certain percentage of locally manufactured products. Even the environment stands to gain, since all members would agree to follow carbon emission standards.

However, the 2,000 page-plus deal has many detractors, including both presumptive nominees in the upcoming presidential election. So what’s the deal? Would this pact ultimately be financially healthy for American workers, including welders?

The Problem with Free Trade
In this two-part series, we will look for answers. This first installment presents the argument posed by the scholars at American University’s Investigative Reporting Workshop. They, like many others, claim that free trade agreements have hurt the American economy, as evidenced by the outsourcing of American jobs overseas and the steady increase in our trade balance deficit. In their view, the TPP is another in a long list of legislative proposals that have failed to deliver on the promise of prosperity.

This could be due to several reasons. Some, like Ian Fletcher, senior economist for the Coalition for a Prosperous America, postulate that free trade is a diplomatic tool, a covert foreign policy agenda without any sincerely anticipated economic benefits for Americans. In other words, access to the American consumer is used as a bargaining chip to get other nations to see the U.S. point of view. American consumers are undeniably the biggest spenders in the first world and others have much to gain from it.

In another article, the non-profit corporation, Economy in Crisis, states that the problem with free trade is that it’s impossible to enforce. Tariffs are not the only barriers to fair trade, since there are other “state-sponsored trade weapons” like currency manipulation, technology transfer requirements, joint-venture and selective customs policies, as well as underhanded government subsidies. So even if we play by the rules, it seems like other countries are finding ways around them.

The History of Trade Reform
The Investigative Reporting Workshop provides historical evidence for the failure of free-trade legislation to bolster the American economy, beginning with the Bretton Woods Conference of 1944.

  • U.S. Secretary of the Treasury Henry Morgenthau addressed a session of the Bretton Woods Conference in 1944.
    U.S. Secretary of the Treasury Henry Morgenthau addressed a session of the Bretton Woods Conference in 1944.

    Bretton Woods Conference, July of 1944
    The Bretton Woods Conference held at the end of World War II established an economic order meant to foster open markets and free trade. The U.S. Treasury Secretary, Henry Morgenthau, states that the creation of financial entities such as the International Monetary Fund (IMF) marks the end of economic nationalism. This new economic order requires leading Western nations like the United States to lower barriers to trade and ensure movement of capital. It was thought that an increase in imports would be positive for the U.S. because the money paid for their products would then be used to buy more American products. This, in turn, would lead to an increase in U.S. jobs. However, from the end of World War II through the 1960s, the U.S. trade surplus dwindled from 5 billion to 607 million in 1969. In 1972, that small surplus became a 6.4 billion dollar deficit.

  • Free Trade Act of 1974
    The purpose of the Free Trade Act of 1974 was to safeguard domestic industries and force U.S. trading partners to open their markets to American goods. For the first time, the president was granted authority to negotiate trade agreements that congress could either approve or disapprove, but not amend or filibuster. The Trade Preferences Extension Act of 2015 maintains this provision. More importantly, it gave the president authority to counteract injurious and unfair trade practices known as Section 201 and 301. Section 201 requires that the United States’ International Trade Commission investigate petitions filed by domestic industries or workers claiming injury or threat due to expanding imports. According to this act, an injury could be redressed by an “orderly transfer of resources to more productive pursuits” designed to “enhance competitiveness.” This provision was intended to eliminate unfair foreign trade practices that adversely affected U.S. trade and investment in both goods and services. Under Section 301, the president must determine whether the alleged practices are unjustifiable, unreasonable, or discriminatory, thus burdening or restricting U.S. commerce. If the president determines action is necessary, the law states that he or she should eliminate it. This act passed with bipartisan support, but in the end, the results were disappointing. The deficit went from $6 billion in 1974 to $34 billion in 1978, an increase of 467 percent.
  • Trade Agreements Act of 1979
    The Trade Agreements Act of 1979 provided additional legal infrastructure for the smooth operation of the previous bill, the Free Trade Act of 1974. The goals were to “expand the opportunities” for U.S. commerce in international trade and to “improve the rules of international trade” by “providing enforcement” of said rules. Senator Daniel Patrick Moynihan of New York said, “It begins a new era … that has one specific purpose above all: to see that non-tariff barriers to trade come down … [And] to stop that hemorrhage of American jobs and industry profits.” However, in 1984, the trade deficit reached $100 billion for the first time in U.S. history.
  • Trade and Tariff Act of 1984
    At this point, Congress believed that there were issues with the specificity of Section 301, which was established in the Free Trade Act of 1974. This act clarified cases in Section 301 which could be pursued. It passed with bipartisan support. Both sides highlighted that US exports were not treated fairly abroad. Republican Sen. John Danforth of Missouri said the new law “significantly strengthens … that provision in the law which provides our government with the ability to retaliate against unfair practices against U.S. exports.” Democratic Senator Lloyd Bensten elaborated on the “unfairness” that precipitated the legislation: “The United States has taken the lead in building support for an open international trading system. The rest of the world, unfortunately, has not reciprocated. Our partners in trade have been quick to take advantage of our open markets while often managing to keep theirs closed or protected.” In 1987, the trade deficit hit a record high of $160 billion.
  • Omnibus Foreign Trade and Competitiveness of 1988
    Workers, unions, and industry management rallied together and called for action to be taken about countries with an “unfair advantage.” The amendment ordered that the executive branch thoroughly examine trade with countries that had large trade surpluses with the U.S. The bill proposed that if the surpluses continued, the “offending country” would be faced with a bilateral surplus reduction of 10%. In 1992, the trade deficit decreased to around $84 billion.
  • North American Free Trade Agreement (1993)
    The goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada, and Mexico. It also sought to protect all intellectual property rights on traded products. President Bill Clinton expressed his confidence in this bill. “NAFTA means jobs. American jobs, and good-paying American jobs. If I didn’t believe that, I wouldn’t support this agreement.” However, the Department of Labor has estimated that NAFTA cost America 525,000 jobs between 1994 and 2002. Also, twelve years after NAFTA, our trade deficit with Canada went from $8.1 billion to $71 billion. Our trade balance with Mexico went from a $1.6 billion surplus to a $61.6 billion deficit.

In his article “The Pros & Cons of a Trade Deficit,” Adam Hayes says that oftentimes the “observed data” and economic “theory” don’t line up, and that’s why economists have a hard time agreeing. According to Hayes, the U.S. is not adversely affected by trade deficits because it is the world’s largest economy, and the dollar serves as the world reserve currency. However, many would disagree. What about all those lost jobs, reduced earnings, and the almost-8-million Americans that remain unemployed or underemployed? Do most Americans feel like they have become more prosperous over the years? In our next post, we will look at specific industries and local job markets to examine what they have to say about this new trade agreement.