TPP’s Death Won’t Help the American Middle Class
The Trans-Pacific Partnership would have increased regulations on foreign labor, potentially making U.S. workers more competitive.
Donald J. Trump has been elected president, and trade as we know it is dead. Specifically, the Trans-Pacific Partnership (TPP), the 12-country trade deal that was opposed by both Trump and by Democrat Bernie Sanders, will not be voted on in Congress before President Obama leaves office. With Trump’s vocal opposition to it and other trade deals, there’s little chance that it will be addressed once he takes office either. “Not only will the TPP undermine our economy, but it will undermine our independence,” Trump said in his “Declaring American Economic Independence” speech back in June, in which he pledged to withdraw the U.S. from the TPP.
But there are many things that are lost with the demise of the TPP, and the withdrawal could actually harm American workers. Specifically, the TPP could have established stringent labor and environmental laws in other countries that could have driven up the cost of labor there, thus making American workers more appealing. In short, by trying to protect American workers by killing TPP, Trump may be actually hurting them by reducing the incentive for companies to create jobs here, says Chad Bown, a senior fellow at the Peterson Institute for International Economics, a think tank with a favorable view towards trade.
The TPP essentially took NAFTA, the free-trade agreement among Canada, Mexico, and the United States that Trump called “the worst trade deal ever,” and added a whole bunch of countries, including Australia, Vietnam, Japan, and Malaysia. But TPP’s labor and environmental standards went far beyond NAFTA’s, establishing stronger rules for child labor, wages, and protecting unions and the environment. Countries such as Vietnam, for instance, would have been required to comply with the International Labor Organization’s principles prohibiting child labor and forced labor, and would have been required to permit collective bargaining and establish a minimum wage. Under the TPP, labor standards would have been enforceable under dispute settlement, which meant that if countries didn’t live up to TPP standards, the U.S. could have retaliated by imposing higher tariffs. (Labor groups were skeptical that these new enforcement mechanisms would have been effective.)
According to Bown, TPP “writes a lot of new rules covering things that were really just kind of touched on in NAFTA, but that folks have been complaining about—labor standards and environmental standards.”
Perhaps many American workers don’t particularly care about working conditions for people in places like Vietnam, especially when U.S. workers are themselves suffering. But raising labor and environmental standards abroad, especially in countries where many companies have moved manufacturing operations, could have a very direct effect on U.S. workers. When other countries have to put in place labor and environmental standards, labor becomes more expensive there. Just look at China, where the cost of doing business is rising as more workers are organizing and demanding better working conditions. Now, companies are bringing back manufacturing operations from China. The TPP provisions “would have made foreign labor a little bit more expensive and that would have helped U.S. labor,” Bown said.
To be sure, regulations aren’t the only reason U.S. labor is more expensive than foreign labor. Other countries like Vietnam have a lower cost of living, and thus can pay much lower wages. But labor and environmental standards are the type of policies that drive up costs of living, Bown said. And even adding some costs to labor could make companies reconsider their decision to locate overseas. Outsourcing is an expensive headache; at some point, the costs make it not worth it anymore.
Of course, detractors say that despite the rules on the books, the TPP was not enforceable enough, and that countries would still be able to flaunt laws with impunity. And by lowering tariffs, the TPP could have caused some jobs to move overseas. But the TPP was the U.S.’s last best chance to get other countries to improve their labor standards, Bown says. With it gone, there are few options left, since other trade agreements were weaker in this arena. The U.S. tried to enforce labor standards in Guatemala after the signing of the Central America-United States Free Trade Agreement (CAFTA), but its efforts have been slow and trade negotiators have not made much progress holding Guatemala accountable.
If the U.S. does not want to hold other countries accountable for better labor standards, another way to attract corporations to hire Americans would be to lower labor or regulatory standards at home. This is something Trump and the GOP have pledged to do. They say getting rid of some regulations, which include occupational safety rules and environmental laws, will make it cheaper to do business here. But that’s not something that is going to purely benefit U.S. workers, even if it does result in more jobs. It will make workplaces more dangerous and the environment more polluted.
The U.S. needs to figure out how to entice businesses to set up shop here and employ thousands of American workers. This is a daunting challenge. Republicans seem to be going down the path of making labor even cheaper here, a route that may bring jobs but not ones that can provide for a secure middle-class life. The alternative path—making foreign workers more expensive—has just been closed.