Putting the TPP in Context

By October 9, 2015Blog

With negotiations for the Trans-Pacific Partnership (TPP) finalized but the full details of the trade agreement not yet revealed, politicians have taken to asserting its virtues or exposing its perceived evils, and to speculating over its economic impact.

The shadow of NAFTA looms large over the discussions. The 1994 trade deal between the US, Mexico, and Canada is still hard to peg as decidedly beneficial for all three countries. However, the economic context in which the TPP is being developed, and the goals thereof, are inherently different.

Manufacturing jobs accounted for 15% of nonfarm domestic employment in 1994, versus 9% in 2014. In the five year preceding NAFTA, manufacturing jobs as a percentage of total jobs dropped by 2.3%. In the five years leading up to the TPP (assuming the partnership will be formalized in the coming months), that same share fell by only 0.6%.

While US manufacturing employment numbers have risen slightly of late, the economy has shifted heavily toward services, which now accounts for 86% of total employment.  Meanwhile, communication technologies have the potential to extend the reach and scope of services.

And so the question becomes, how can the TPP advance the interests of America’s service sector?

At the same time, containerization and other advances in transportation have opened up opportunities for goods-producers. So we should also be thinking about the TPP in terms of how it might grow our manufacturing base.

Taking it a step further, does the TPP present an opportunity to establish a better balance between our goods-producing and service-producing sectors in a way that maximizes economic growth?

The goal behind most trade agreements is to resolve issues that may inhibit the free flow of goods and services between countries. When, however, a large group of countries with vastly different economies and styles of governance are involved – as is the case with the 12-country, globe-spanning TPP – those issues can become jumbled and difficult to straighten out.

What does the TPP mean for the American service-based economy? Will lowering tariffs lead to a rebalancing of our economy? These are the sort of questions we should ask to put the details of the deal into context and to better assess if the TPP can help the US realize a better economic future.

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