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Free Trade Vs. American Jobs

With half of all 25-year-olds living with their parents as Zero Hedge reports, it would seem to be the perfect time to enact a mystery trade agreement that increases unemployment and puts pressure on wages. Just saying.

Free Trade Vs. American Jobs

Courtesy of Dr. Paul Price at Market Shadows

Thursday’s Wall Street Journal included a feature article on the Trans-Pacific Partnership, commonly called the TPP. The headline read, “TPP is a surprising vote of confidence in globalization.”

The WSJ’s subtitle spoke about the bill’s limitations on national sovereignty. Member countries would give up control of their own laws while subjugating decision-making to unelected officials and business groups with vested interests in the results. The WSJ noted that political support for the TPP was strong, except here in the USA.

Americans should be opposed to this secretive, Wall Street-promoted trade agreement. Here's why:

Tariffs and patent protection periods would be reduced while most rules and regulations would be set and enforced by outsiders. Many of the new terms will be in conflict with exisiting American laws, but they will take preference.

The advertised intent of the TPP is to make international trade cheaper and easier. And it probably will -- for large, international corporations. Some business will benefit, but others will lose. Not surprisingly, Wall Street strongly supports the agreement.

All the negotiations have been done behind closed doors. The public cannot see what is actually being agreed to. There has been no opportunity to openly debate the terms of the agreement and the likely effects of the TPP on the American economy. We are being asked (or ordered), once again, to approve a massive change in our economic system without knowing what we will be encumbered with. 


 Nancy Pelosi's line on March 10, 2010, when speaking about the Affordable Care Act (a.k.a. Obamacare).

There is one thing we know, however, and that is that historically agreements like the TPP have not benefitted the public.

The General Agreement on Tariffs and Trade (GATT) was hammered out and implemented between 1947 and  1956. Its tariff reductions jump-started the rise of international trade as a percentage of global GDP. It also facilitated the offshoring of US manufacturing jobs to lower wage areas.

The North American Free Trade Agreement (NAFTA) kicked in after 1992. Presidential candidate Ross Perot warned of the “giant sucking sound” from Mexico as US jobs migrated to south of the border.

The Canadian-US Free Trade Agreement brought more competition for American workers. Each expansion of ‘free trade’ gave US companies larger incentives and greater ease in moving jobs out of America. 

China was given World Trade Organization (WTO) privileges early in this century. Through permanently normalized trade relations and lower tariffs, China gained easier access for exporting goods to America. NAFTA was bad but the setting the Chinese free to sell goods here with little restriction was the final nail in the coffin for domestic manufacturing jobs.

It is not a coincidence that our own labor participation rate (the percentage of all working age people who actually hold jobs) peaked in the mid-to-late 1990s. As of Sep. 30, 2015, that very important measure had retreated to 62.4%, a 38-year low. 

Seeing the WSJ's  "Path to Free Trade" and America's Labor Participation Rate together shows how much damage was done to our industrial job base since the most significant [red framed on the chart below] trade agreements were put into force. 


You don’t need to be Einstein, or an economist, to realize that lowering trade barriers reduces domestic manufacturing jobs on a continual basis.

The chart below from The Atlantic shows that US manufacturing jobs have been starting to slowly improve since the 2008 financial meltdown. But the TPP will likely work against an already weak recovery. Considering that there has been no recovery in wages, further outsourcing will only add to the pressure on wages in the US:

Scott, of EPI, worries that the biggest damage from TPP could be to U.S. wages. The trade pact will increase the importation of competing goods, which will drive down the cost of U.S.-made goods, putting downward pressure on wages. It will open up countries such as Malaysia and Vietnam to foreign direct investment. It may be good for certain businesses and holders of intellectual property patents, but that doesn’t mean it’s going to be good for everyone.


“Make no mistake, it’s certainly going to increase income inequality, and it will, in all likelihood, lead to offshoring a job loss,” Scott said.


Perhaps what is most worrying, though, is the potential that TPP, or any trade agreement, could slow the reshoring of American jobs, especially in some fields such as auto-parts manufacturing, which states in the South such as Tennessee and South Carolina are competing to attract.



U.S. Manufacturing Jobs, in Thousands



There are many reasons to oppose the TPP including the likelihood of more job losses in the US, further eroding of the US middle class, the strong potential for increasing inequality, stronger intellectual property protections for pharmaceuticals, looser restrictions on corporations polluting the environment, and the undermining of democracy in favor of corporate rule. But the chart above is a powerful reason alone to reject the TPP.