September 20, 2013
A new CEPR paper by economist David Rosnick examines the impact that the Trans-Pacific Partnership (TPP) – a trade and investment agreement, modeled on NAFTA – could be expected to have on U.S. wages. The TPP, which is currently being negotiated by 12 countries in Latin America, Asia, North America – as well as by Australia and New Zealand – would result in a net lowering of wages for most U.S. workers, as the inequality effect of the increased trade would outsize the miniscule economic growth projections associated with it. Latin American governments involved in TPP negotiations include Chile, Mexico and Peru, all of which already have NAFTA-style trade and investment arrangements with the U.S.
Economic growth and job creation have historically been promoted as key incentives for why countries should rush to enact such so-called “free trade” agreements. NAFTA, for example, was touted as offering tremendous economic potential to Mexico, with predictions that the country would become a “First World” nation. But Mexico’s growth – stagnant since the neoliberal era that began in the 1980’s – did not pick up following NAFTA’s implementation in 1994. As CEPR Co-Director Mark Weisbrot and then-Research Associate Rebecca Ray noted in a paper last year:
Mexico’s economic growth since 2000 has not improved over that of the long-term failure of the previous two decades. Its average annual per capita growth of 0.9 percent for 2000-2011 is about the same as the 0.8 percent annual rate from 1980 to 2000, and a small fraction of the 3.7 percent rate of the pre-2000 era.
Mexico’s economy since 2000 has also performed very badly as compared with the rest of Latin America. Its annual growth of GDP per person is less than half of the growth experienced by the rest of the region.
The impact on Mexico from the global recession – caused by the collapse of the U.S. housing bubble and bubbles in European countries – has been significant, and negative. Mexico, whose exports to the U.S. accounted for 21 percent of its GDP in 2007, suffered the worst output loss — 9.4 percent of GDP — in Latin America during the 2008-2009 recession. Although Mexico’s growth was good in the three years of recovery since its recession, inspiring a spate of articles in the business press with high praise and hopes that 30 years of economic sacrifice had finally paid off, the economy shrank in the second quarter of this year and projections for 2013 have now been halved to a meager 1.8 percent growth.
Reliance on the U.S. as such a major trading partner is a key part of this story; some 80 percent of Mexico’s non-oil exports go to the U.S. market. As we predicted in a 2008 paper, Latin American countries less reliant on trading with the U.S. market, such as Brazil and Argentina, have fared better over the past five years. It should be no surprise that countries would want to diversify their trading partners, since as CEPR pointed out even before the global economic downturn, the U.S. import market is not limitless, and it becomes increasingly less worthwhile for countries to make concessions in order to achieve greater access for their exports to the U.S.
The TPP, as an arrangement potentially encompassing a dozen countries, would not necessarily exacerbate the kind of over-reliance on the U.S. market that bilateral trade agreements – as well as some regional trade schemes such as NAFTA and CAFTA – have engendered. But as has been described in great detail in numerous studies, the selective lowering of barriers in agricultural products, raw materials, manufactured goods and lower paid professions – while raising protections for intellectual property and medicines – can ruin entire sectors of a country’s economy. Under NAFTA, Mexico’s agricultural sector suffered greatly as it went from being a net exporter of corn to becoming dependent on the United States for corn imports, while many of the jobs created under NAFTA soon relocated to China and elsewhere.
As we noted earlier this month, and as Jonathan Glennie describes in The Guardian, similar impacts to Colombia’s agricultural sector – which farmers blame on the U.S.-Colombia Free Trade Agreement – were behind massive, nationwide protests in Colombia in recent weeks. Glennie writes:
The same storyline has been played out in countless countries. A failure by successive governments to invest in things that small-scale farmers need to thrive – better roads to get their produce to markets, subsidies to reduce the soaring cost of inputs – is then compounded by a decision to open up the countryside to international competition.
In this case, that involved a major free-trade agreement with the US that came into force last year. Colombia’s farmers – who were barely eking out a living in the first place – are being undercut, making it even harder from them to make ends meet.
Latin American countries such as Peru may be interested in joining the TPP because of increased access to markets in Asia and Australia, as State Department cables made available by Wikileaks cite officials as saying, but that doesn’t mean that the TPP won’t offer many of the same harmful economic impacts as similar trade deals have over the past 20 years.
