Labor Unions’ Opposition to Pacific Trade Pact Misguided

Freer trade across the Pacific might cost some jobs but it would be a positive for the United States on balance.

A container terminal in the Port of Houston, Texas, April 23, 2011
A container terminal in the Port of Houston, Texas, April 23, 2011 (Roy Luck)

America’s largest trade union federation said this week it would withhold campaign donations from Democrats who voted in favor of giving President Barack Obama the authority to negotiate a free-trade agreement with Pacific nations. Their arguments against the Trans Pacific Partnership are not unreasonable but ultimately misguided.

“We know NAFTA” — the North American Free Trade Agreement that came into force in 1994 — “has not worked,” Tefere Gebre of the AFL–CIO told the Democratic National Committee’s labor council last month. “CAFTA” — the Central America Free Trade Agreement — “has not worked,” he added, “and we have lost jobs and they have brought our wages down.”

Why the hell would we think a new, larger NAFTA-on-steroids TPP would work?

The unions say speed approval of a Pacific trade deal would lower labor standards in the United States and create additional wage stagnation.

They are not altogether wrong.

The Massachusetts Institute of Technology’s David Autor, Zurich University’s David Dorn and the University of California, San Diego’s Gordon H. Hanson write in The Washington Post that there is substantial evidence that import competition from low-wage countries has contributed to a decline in American manufacturing employment in the last two decades.

Since 2000 alone, America has lost five million manufacturing jobs. Autor, Dorn and Hanson say that 21 percent of the decline in manufacturing jobs during the 1990s and 2000s was due to competition from China. Automation has further added to job losses for Americans without a college degree.

Yet the three still believe entering into a free-trade agreement with eleven other Pacific countries would be a good idea.

First, they point out that the Trans Pacific Partnership would not only govern exchange of traditional goods and services but also intellectual property and foreign investment — something that should promote trade in the kind of knowledge-intensive services that American companies do exceptionally well.

Second, opting out of the pact would do little to nothing to bring factory work back to the United States.

Third, “and perhaps most important,” they write, although China isn’t part of the negotiations, “enacting the agreement would raise regulatory rules and standards for several of China’s key trading partners.” That would pressure the country — which is expected to overtake America as the world’s largest economy within the next few years — to meet some of those standards and stop trying to game global trade to impede foreign companies.

The Trans Pacific Partnership is more than a trade agreement. It is part of the administration’s “rebalancing” strategy, designing to bring China into the existing liberal world order rather than have it attempt to create a competing, presumably more authoritarian, order under its own leadership. China isn’t part of the talks. But there is no reason why it shouldn’t join at a later date, once it meets the qualifications.

When it comes purely to the economic effects of the trade agreement, the labor unions also overlook the positive effects for American consumers. Factory jobs in the United States may be lost but only if companies can produce cheaper in Asia — which would mean cheaper products for Americans.

Given that America is a net importer, shouldn’t the interests of consumers weigh at least as heavily as the interests of producers?

Unions’ concern about manufacturing’s decline is anyway overblown. Although jobs have been lost and manufacturing’s share of American gross domestic product has shrunk — every year since the 1950s! — manufacturing output has increased more than 80 percent since 1987.

According to the Bureau of Economic Analysis, the market value of manufactured goods, over and above the costs that went into their production, has consistently risen since.

That means while fewer Americans are making clothes and toys that workers in Asia could produce for less, more are building airplanes, automobile components, chemicals, pharmaceuticals, plastics and other products, many of which are exported to Asia and other parts of the world.

55 cents of every dollar that is spent on a product made in China actually goes to Americans who design the products, manufacture components for them, transport the goods, market and retail them or finance their production and trade.

Nearly half of the goods America imports is brought in by companies that often use those goods for further production — part of which is exported again.

Without a free flow of goods and investment, American manufacturing would suffer far more than it does from foreign competition today.

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