• January 20, 2015
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  • Trade

The Wages of Trade

Why the Trans-Pacific trade deal won’t depress U.S. wages

Anticipating Congressional debate on the Trans-Pacific Partnership, Sen. Bernie Sanders (an independent Socialist from Vermont) took a dire view last New Year’s Eve:

“The TPP will make the race to the bottom worse because it forces American workers to compete with desperate workers in Vietnam where the minimum wage is just 56 cents an hour.”

This argument has a long history in American trade debates. It was in fact the rhetorical staple of a century-long line of economic nationalist politicians: from Whig Party eminences Clay and Webster, who loved to warn of the “cheap pauper labor,” and “unpaid and half-fed labor” of Britain and continental Europe in the 1830s and 1840s, through Gilded Age pols James Blaine and William McKinley, down to Jazz Age isolationists Harding, Coolidge, and Herbert Hoover, whose 1928 platform argued for tariff hikes to support “industries which cannot now successfully compete with foreign producers because of lower foreign wages and a lower standard of living abroad.”

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78 percent of all U.S. imports from developing countries were duty-free last year.

Is reviving their fears a useful guide for modern Americans? By way of background, the “TPP” (full name Trans-Pacific Partnership) is a 12-country trade agreement now in the late stages of negotiation, which if successful would join the U.S. with Canada, Mexico, Peru, Chile, New Zealand, Australia, Singapore, Brunei, Malaysia, Vietnam, and Japan.

It is a complex agreement with features covering Internet and data flow, enforcement of rules banning trade in endangered species and limiting fishery subsidies, customs and port rules, tariff rates, new-technology approvals, automobile trade, market-opening for American products, and lots more. But as far as competition with Vietnam (and by extension lower-wage countries in general) here are the basics:

U.S and Vietnam

The modern U.S. trade relationship with Vietnam dates to the Bilateral Commercial Agreement in 2000, which ended the post-1975 trade embargo.

Last year, Hanoi and Mekong Delta farms, factories, and fishing fleets shipped $30.6 billion worth of goods to the United States. This is about 1.0 percent of America’s $3.2 trillion in total imports, 3.4 percent of the $815 billion in imports from the TPP countries, and the equivalent of 30 days’ worth of U.S. imports from Canada, which are about $350 billion.

Vietnam’s relatively small share of U.S. trade suggests that even a big jump in Vietnamese imports will have only minor effects on overall U.S. imports, and therefore would have only minor ‘competitive’ effects.

Do U.S. trade barriers block poor-country goods?

Sen. Sanders’ implicit argument, though, seems to be against competition with developing-country workers in general, rather with Vietnamese workers per se.

Setting aside the merits of this view as economics, its relevance to policy rests on a premise: the U.S. now has an effective existing set of barriers blocking poor-country goods, which TPP or other agreements will breach.

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American employment in high-tariff industries makes up about 1 percent of the U.S.’ 12.2 million factory workers

But in fact U.S. trade barriers are generally low, mostly nonexistent, and usually ineffective where they do exist.

About 78 percent of last year’s goods imports from developing countries arrived with no tariffs, quota limits, or other barriers. (Apart of course from consumer safety rules, anti-counterfeiting laws, and other limits imposed for public-good reasons.)

About 5 percent did come in with high tariffs, but these often applied to goods not made in the United States. Vietnam’s trade patterns illustrate, with the $30.6 billion in imports dividing roughly into two groups:

  • Zero-tariff goods: For about 40 percent of Vietnamese goods, the U.S. abolished all tariffs long ago and has no other form of trade barrier apart from product-safety and food-safety rules.

These include $3.5 billion worth of cell phones and personal computers, for which tariffs vanished in 1997; $500 million in coffee, which hasn’t had any tariffs since the 1920s; $3 billion in furniture, where tariffs were abolished in 1994; $1.7 billion in shrimp, catfish, and other seafood; $600 million in cashew nuts; $200 million in toys, and so on. In these categories of products, as there are no barriers to remove, TPP isn’t likely to have a competitive effect.

  • High-tariff goods: Vietnam is also a large supplier of high-tariff goods, mainly $14 billion worth of mass-market clothes, running shoes, handbags and luggage.

These have tariffs, mostly unchanged since the 1950s, which average about 15 percent and peak at 48 percent for cheap sneakers. In many cases, however, these tariffs are entirely ineffectual.

For example, about 99 percent of shoes, and all cheap sneakers, sold in the U.S. are imported anyway. In these cases, tariffs operate only as a way to tax shoppers.

Overall, American employment in these high-tariff industries makes up about 1 percent of the U.S.’ 12.2 million factory workers, and 0.1 percent of the 140 million employed American workers.

Vietnam’s stake in eliminating tariffs of this sort is mainly for competition with other suppliers – China in particular, but also neighboring Southeast Asian countries outside the TPP, and other suppliers with duty-free status via FTAs and preference programs.

Labor standards

Finally, TPP is doing genuinely new and innovative things is in labor standards, where it will likely be the most elaborate, enforceable, and ‘liberal’ agreement the U.S. has ever concluded.

Assuming U.S. negotiators are reasonably successful, this will cover laws, implementation of laws, and capacity-building programs in labor rights, child labor prevention, minimum wage policies, and workplace health and safety policies.

In this sense, for those worried about the ‘desperation’ of Vietnamese workers, TPP looks more like a progressive solution than a cause to worry. goldbrown2

This article first appeared in the Progressive Economy Trade Fact of the Week and was republished with permission.

Ed Gresser is Executive Director of Progressive Economy, a Washington (D.C.)-based project of the non-profit GlobalWorks Foundation that is joined in the campaign to eliminate global poverty. Before joining GlobalWorks, Gresser served as Director of the Trade and Global Markets program and as interim President of the Democratic Leadership Council, and as Trade and Global Markets Director for the Progressive Policy Institute. He served as Policy Advisor to U.S. Trade Representative Charlene Barshefsky during the Clinton Administration.

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