Dissecting Obama’s Most Recent TPP Lies

Above Photo: From PopularResistance.org.

The early signals from the Obama administration are that the nonsense will be flowing fast and thick in its effort to push the Trans-Pacific Partnership (TPP). We got an indication of the level of the nonsense factor in a CNN article reporting on the administration’s efforts to promote the still secret agreement.

CNN cites a column that President Obama had in a New Hampshire newspaper that told readers:

“…trade is a substantial driver of New Hampshire’s economy. Over 20,000 American jobs are currently supported by goods exports from New Hampshire, with 32 percent of Made in New Hampshire goods exports shipped to TPP partners.”

What exactly does it mean for over 20,000 New Hampshire jobs to be supported by exports? Suppose the exports are car parts that are sent to Mexico to be assembled into a car that is shipped back to the United States. Are the workers in New Hampshire suppose to celebrate because their parts are being exported to Mexico (a TPP partner) rather than being shipped to be assembled in Ohio?

This is obviously a ridiculous thing to say and certainly President Obama knows it. He repeats the line because it has been focus group tested and he can apparently count on reporters not pointing out its absurdity.

If we are talking about jobs in terms of demand for workers, then the relevant issue is net exports, which is exports minus imports. President Obama and all his economists know this, but they would rather not discuss this story because we have a large and growing trade deficit, meaning that trade is subtracting from total employment.

The other item in this cheap trick category is the administration’s often-repeated claim that:

“…the trade deal will eliminate over 18,000 taxes on products made by American manufacturers.”

There are two questions that serious reporters would pose. First, what is the average size of the “18,000 taxes” that would be eliminated? My guess is that it would be very close to 1.0 percent, but we should know the number. Surely the administration does.

The other question is how many of these taxes would have been eliminated even without the TPP? We already have trade deals with TPP countries like Mexico, Peru, and Australia. These deals are usually phased in over many years. It is likely the case that many tariffs with these countries that are already being phased out are counted in that 18,000 number. That would be dishonest, but hey, in the pursuit of trade deals all is fair.

There is an efficiency argument for trade, that trade increases average wages by allowing items to be produced in lower cost countries. President Obama may not want to go that route for two reasons.

The first is that this story implies there are winners and losers from trade and most workers have likely ended up as losers in recent years. Of course we could in principle redistribute from the winners to the losers and make everyone better off, but we never do.

The other reason that President Obama doesn’t want to argue the efficiency route with the TPP is that it is far from clear that it is a winner on efficiency grounds. Much of the trade deal is about making patent and copyright monopolies longer and stronger. These forms of protection have the same economic impact as tariffs, except they are very large. Instead of being 1 percent or 10 percent, they are equivalent to 1000 percent or 10,000 percent tariffs, making the price of items like prescription drugs very expensive.

To give an idea of the potential cost of the protectionist parts of the TPP, New Zealand’s government estimated that the provision extending copyright protection from 50 years to 70 years would cost it 0.13 percent of GDP annually, the equivalent of $23 billion a year in the United States. The cost of stronger patent related protections, that can raise the price of drugs from $10 to $20 per prescription, to thousands of dollars per prescription, would almost certainly be much larger.

With most of the trade barriers between the U.S. and other TPP countries already low or non-existent, the gains from the trade liberalization in the deal will be limited. It is entirely possible that the losses from the increased protectionism will be larger and conceivably much larger. For this reason the administration might prefer making up silly stories about jobs supported by exports and the number of taxes eliminated, and the media will likely let him get away with it.