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TPP Will Boost US Exports, Wages but Slow Manufacturing Employment, New Report Says

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The far-reaching Trans-Pacific Partnership (TPP) trade deal President Obama is imploring Congress to pass this year is expected to increase American incomes and annual exports, but it may have little effect on U.S. employment levels, and possibly adverse effects on manufacturing employment.

In a newly released report from the Peterson Institute for International Economics (PIIE) analyzing the agreement’s potential impacts, researchers said TPP will increase annual U.S. incomes by $131 billion or 0.5% of GDP.

Exports, as a result, are expected to increase $357 billion, or 9.1% of exports, by 2030 when the agreement should be close to full implementation.

TPP’s effect on manufacturing may be a bit less favorable, however.

According to the report, TPP “dampens the growth rate of manufacturing employment by about one-fifth,” or 121,000 fewer jobs by 2030.

“The shifts under the TPP favor labor relative to capital, because service sectors are relatively skilled-labor intensive whereas import-competing manufacturing is generally capital and unskilled-labor intensive,” Peter Petri and Michael Plummer wrote in the study. “As U.S. resources shift from general manufacturing toward traded services and advanced manufacturing, the returns of skilled labor rise.”

In other words, while TPP might increase productivity, it makes wages go up more than capital, and the wages of skilled workers will go up more than those of unskilled workers.

Because displaced workers will likely find new jobs, according to PIIE, the overall U.S. job market will be little affected. The trade liberalization group estimates that 53,700 jobs will be affected each year during TPP’s implementation—a number that reflects both jobs eliminated in less productive sectors and those added in expanding areas, better known as “churn.” The number would only represent a 0.1% increase in typical annual market churn.

Petri and Plummer expect the 12-nation TPP to enter into force in 2017 based on established timelines, but the tie up that has been customary in settling trade deals could mean a sizeable economic loss for the U.S.

“Given these benefits, delaying the launch of the TPP by even one year would represent a $77 billion permanent loss, or opportunity cost, to the U.S. economy as well as create other risks,” the report noted. “Postponing implementation will give up gains that compound over time and defer or foreclose new opportunities for the United States in international negotiations.”

Based on its analysis, PIIE said the TPP agreement seems to have met its two major objectives: to substantially benefit its members and to develop global rules for economic integration that are more inclusive than the outdated WTO rulebook, factoring in things like investment, telecommunications and the digital economy.

“While the United States will be the largest beneficiary of the TPP in absolute terms, the agreement will generate substantial gains for Japan, Malaysia, and Vietnam as well, and solid benefits for other members,” according to the report.

Japan will benefit from improved market access throughout the TPP region, liberalization of auto imports from markets other than the U.S. and reforms that reduce distortions in its service and investment sectors.

Vietnam and Malaysia will see stimulated domestic reforms as a result of the agreement, which will also provide access to protected foreign markets.

“If the TPP is ratified and implemented smoothly, these rules will renew progress—now stalled for more than two decades—in strengthening the world trading system,” PIIE concluded.

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