President Obama met with the leaders of Canada and Mexico over the past few days in order to discuss the Pacific trade deal that would lead to closer integration between North America and Asia. Already, however, Obama is facing resistance from some Democrats who fear that the so-called Trans-Pacific Partnership (TPP) will result in more lost American jobs.
At a time when many Americans are struggling and inequality is rising, free trade deals such as TPP could quickly become a source of resentment, especially for blue collar and middle class workers.
Free trade agreements can help lead to economic growth, lower costs, and new export markets. At the same time, however, some people may see their jobs shipped to lower cost countries and some businesses may find themselves struggling to compete. With inequality already at record highs and the employment market remaining stagnant, another free trade agreement may stir up discontent among populist politicians and mainstream Americans alike.
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
TPP – Is America internationally competitive?
Trade deals tend to work best for those countries that possess strong competitive advantages. At the moment, however, there are some concerns of whether or not the United States is even in a good position to compete with Asia.
Labor costs are lower, regulations are more lax, and in many countries government support is abundant. These built-in competitive advantages may make it difficult for the United States to compete, especially in manufacturing and other low skill industries.
And yet these low skill industries are the very same ones that provide millions of Americans with jobs and income. If more manufacturing jobs are outsourced, the United States could once again find itself faced with rising unemployment rates and declining tax revenues.
On the other hand, the free trade deal may help U.S. exports. The United States has been making headway in reducing its trade deficit. With prices rising in Asia and dropping in the U.S., America is increasingly looking like a good place to set up shop.
TPP – NAFTA suggests free trade deal hurts middle class
This year marks the 20th anniversary of NAFTA, the free trade agreement that dramatically lowered trade barriers between Canada, Mexico, and the United States. The track record of NAFTA has remained highly controversial, with supporters and detractors able to cite numerous pieces of data, many of them conflicting.
Detractors note that in 1993 the United States had a $2.5 billion dollar trade surplus with Mexico and a $29 billion dollar deficit with Canada. Since then, the combined deficit to Canada and Mexico has ballooned to an astounding $181 billion dollars. Even more damming, the annual growth of the trade deficit is actually 45 percent higher than the growth of deficits with countries that are not part of any free trade deal with the U.S.
The result has been a flood of middle class jobs leaving the country. The actual number of jobs lost is hard to calculate, but a special program ran by the Labor Department to assist displaced workers who lost their jobs to offshoring has a total of 845,000 participants. Even displaced workers who do find new jobs often find themselves faced with declining wages, with many of them losing over a fifth of their income. Many people who lose well-paying manufacturing jobs are forced to find employment in low paying service jobs.
Meanwhile, while the United States has seen productivity growing at healthy rates, wages have stagnated. Since the signing of NAFTA, wages have grown by only one percent, even though living costs have risen. In fact, numerous studies have suggested that NAFTA has contributed up to 40 percent of the increase in inequality.
As such, Obama may soon find himself under internal pressure from the Democrats over TPP . With support from the Republican Party almost non-existent, and his popularity among American voters declining, Obama may find himself increasingly isolated and at odds with the rest of America.