Memo to Democrats: U.S. Workers could be Big Winners in the Current Trade Talks

Memo to Democrats: U.S. Workers could be Big Winners in the Current Trade Talks

February 6, 2014

President Obama’s drive to complete new open trade agreements with the European Union and 11 Pacific Rim nations are the most critical economic initiatives of his second term. Their importance reflects the basic patterns of economic growth across the world. After a decade of unusually weak growth, job creation and income gains, America’s prospects for rising wages and employment are increasingly linked to how successfully American businesses can tap into foreign demand. Beyond the big demand issues, the two agreements also should subtly affect the tradeoffs that American multinationals face between exporting goods and services produced here, versus expanding their European and Asian operations. And those more subtle effects could produce large long-term benefits for American workers.  

The Transatlantic Trade and Investment Partnership (TTIP) talks would end most tariffs and reduce countless other barriers to open trade between the United States and the 27 countries of the European Union, with their combined GDP of some $17 trillion. Not only would the agreement give American businesses and investors nearly as much access to European consumers and businesses as Germany or France, including the fast-growing emerging economies of Central and Eastern Europe. Equally important, such an agreement would recalibrate the choices that U. S. companies face today between exporting to Europe and increasing their foreign direct investments there. For the first time, America’s multinationals could enjoy nearly unfettered access to the European market without setting up more operations there.

The second proposed agreement, the Trans-Pacific Partnership (TPP), also would reduce tariffs and other barriers between and among ourselves and Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Not counting ourselves and our NAFTA partners, Mexico and Canada, where we already enjoy open trade; the other TPP countries represent nearly $9 trillion of potential demand for our goods and services.  And much like the proposed EU-US partnership, the Pacific agreement would, at once, lower barriers to U.S. exports to those countries and change the calculus of foreign direct investment (FDI) versus exports in ways that would tilt more towards exports. If 10 percent of our current FDI flows to countries involved in the two agreements shifts to domestic investments or simply higher profits, it could boost U. S. employment by as much as 450,000 jobs.

These initiatives present a singular opportunity to open up markets that represent nearly half of all non-U.S. global GDP.  As the world’s most comprehensive and productive economy, the United States will be well positioned to use this enhanced access to increase our global market shares in countless advanced goods and services. And, by reducing the costs of exporting into foreign markets, as compared to setting up more new factories and offices inside those markets, these agreements could be the first new trade pacts for a global economy that genuinely favor U.S. workers.