Slashing barriers should create more winners than losers
ACCORDING to the National Chicken Council (NCC), an American association of poultry farmers, the real question is “what road has our chicken not crossed?” For every five pounds of chicken produced in America, one pound is exported; trade allows chicken farmers to export some of the dark meat that foreigners prefer, while keeping the rest for Americans who think that breast is best.
But chicken cannot fly freely across borders (or, indeed, very far at all). The Vietnamese authorities slap on a tax of 40% on whole frozen chickens arriving from America. Such tariffs throttle trade, protect less productive producers from competition, and ultimately mean pricier poultry. So the NCC welcomed the Trans-Pacific Partnership (TPP) trade deal, which promised to lift the offending tariff.
This is just one of thousands of trade restrictions that TPP promises to scratch. Three quarters of tariffs will be removed as soon as the deal is ratified, rising to 99% when fully implemented. It should boost more than chicken exports: a working paper published on January 25th from Peter Petri and Michael Plummer, economists at the Peterson Institute for International Economics, estimates that TPP will boost trade and real incomes.
Comparing trade and investment flows with and without the deal, the authors estimate that TPP will raise Americans’ real incomes by around 0.5% by 2030 (with the caveat that figures so far into the future come with huge uncertainty). The 11 other TPP partner countries should see an even larger bump; Vietnam’s new access to previously protected foreign markets should mean a 8.1% boost to real incomes by 2030. Malaysia and Japan should also see real incomes increase by the same year, by 7.6% and 2.5% respectively.
These effects of the deal are around 36% larger than earlier estimates from the same authors. This is mostly because they included the spillover effects of TPP, which feed back into stronger growth for the countries involved. More transparency and better regulation should boost trade with all trading partners, not just TPP countries. Around 30% of the boost to American GDP comes from this feedback effect, the authors estimate.
The deal will make some squawk. It will probably divert investment from China and towards the TPP partners it competes with, crimping the former’s GDP by 0.1% by 2030. American politicians are more concerned with those who will struggle to keep pace with jobs relocating across industries and borders as trade barriers are lifted. The authors do not model job losses, but instead estimate the extra job churn as a result of the deal. They conclude that the number of jobs affected—just 53,700—is chicken feed by comparison with the 55.5m Americans who changed jobs in 2014. So it will not be expensive to provide support to those affected.
Some are disappointed that TPP did not go further. In his testimony to the United States International Trade Commission, Mike Brown, president of the NCC, stated his support for the deal but expressed disappointment at the slow progress towards lifting Canadian quotas on American chicken exports. Overall, more tariffs were slashed than had been expected, but progress on non-tariff barriers has been underwhelming.
The deal is imperfect, and given the significant political opposition both within and outside America, it could yet falter. But Mr Petri and Mr Plummer warn that delay is expensive. They estimate the net present cost to the American economy of implementing TPP in 2017, rather than 2016, would be $94 billion. Those hoping for swift implementation should not count their chickens.
