In the works are two new major free trade agreements: the Trans-Pacific Partnership involving the United States and 11 other Pacific-bordering nations, and the Transatlantic Trade and Investment Partnership with the U.S. and European Union. But the question that continues to be asked is this: Are these agreements good for the United States?

The Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP), which has been in negotiations for approximately five years, includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Together, these countries represent approximately 40 percent of global economic output and one-third of trade. The TPP seeks to eliminate tariffs and non-tariff barriers to trade in goods, services, and agriculture, and to establish or expand rules on a number of issues, including intellectual property rights and foreign direct investment.

In addition, it “has the potential to harmonize existing agreements with U.S. FTA partners, attract new participants, and establish regional rules on new policy issues facing the global economy,” the Congressional Research Service says. The TPP negotiations also afford the opportunity to modernize the 20-year-old North American Free Trade Agreement. Plus, it can help the Obama Administration in its effort to “pivot to Asia” for the purpose of providing a counterweight to the rise of China.

The economic impact of the TPP will depend on a number of factors, including the extent of trade liberalization achieved and the economic growth of member countries. Nevertheless, TPP would be the largest U.S. free trade agreement by trade flows, which reached $727 billion in U.S. goods exports to, and $882 billion in imports from TPP countries in 2014.

Both the TTIP and TPP strive to strengthen service sector exports — an essential factor in the future of American economic growth.

Currently, the U.S. average applied tariff rate on foreign products is 1.4 percent, says the United States Trade Representative. What’s more, 70 percent of products entering the U.S. pay no tariff at all. On the other hand, U.S. companies are faced with much higher tariffs when exporting to global markets, and exceptionally high tariffs on many of their products when exported to TPP countries.

For example, according to the United States Trade Representative, tariffs in TPP markets range up to 70 percent on automotive products, 35 percent on chemicals, 60 percent on building products, 75 percent on consumer goods, 25 percent on high-tech instruments, and 30 percent on health products, information and communications technologies. If these tariffs, as well as non-tariff barriers are removed, the TPP, no doubt, will benefit American exporters.

But the greater gains may lie elsewhere. According to Ralph Watkins, former trade analyst at the U.S. International Trade Commission and CEO of Americas Trade Analysis, many U.S. products destined for Asian markets already are produced in Asia. As a result, the greater advantages are likely to come from U.S. exports of services, the strengthening of intellectual property rights and the harmonization of standards and regulations, he says.

Transatlantic Trade and Investment Partnership

If an agreement on the Transatlantic Trade and Investment Partnership (TTIP) is concluded in its initial form, it will cover 50 percent of global output, 30 percent of world merchandise trade, and 20 percent of global investment, according to the Organization for Co-operation and Development.

Although economic growth for the European Union are at historic lows, the world’s largest trade bloc, which includes more than 500 million consumers compared with the U.S. population of 321 million, continues to have tremendous purchasing power. As a result, it remains a major market for U.S. exports. And since tariffs between the United States and European Union already are relatively low, the greater advantages may lie in the agreements ability to effectively deal with agricultural export issues, intellectual property protection, access for U.S. services, and regulatory compliance.

Regulatory issues are considered key to a successful agreement, and include automobiles, chemicals, cosmetics, information communication technologies, medical devices, pesticides, and pharmaceuticals.

According to the Congressional Research Service, “the two sides also seek to use eventual TTIP commitments on the global scene: to advance trade liberalization, set rules and standards; and address challenges associated with emerging markets.”

In The Spotlight

What the Past Tells Us

The overall impact of existing free trade agreements (FTAs) on the United States has been substantial. For example, every year the United States runs a manufacturing trade deficit with the world. However, every year the United States also runs a manufacturing trade surplus with our FTA partners, which currently number 20 involving 14 FTA agreements.

This demonstrates that when the playing field is leveled, when tariffs and non-tariff barriers are reduced or eliminated — a major objective of FTAs — American companies and workers can compete anywhere. The problem: there currently are approximately 400 FTAs in place around the world without American participation. This has put U.S. companies at a competitive disadvantage.

Even with existing foreign trade barriers in place, U.S. exports since 2009 have generated one million new U.S. jobs, according to the U.S. Trade Representative. The highest export job growth has occurred in Texas, creating 251,000 jobs; Washington, 107,000; California, 81,000; Louisiana, 68,000; and Michigan, 62,000 jobs. Exports also have also fueled substantial job creation in Georgia, with 56,000; Illinois, 56,000; and South Carolina, 42,000.

Like all developed countries, the U.S. economy is increasingly driven by its service sector. And surprising to many, the American service sector already is a tremendous exporter, generating a $232 billion trade surplus in 2014. This activity has supported millions of American jobs and continues to be a major source of economic growth.

Over the last decade, the U.S. service sector has become extremely advanced and internationally competitive. In turn, the sector’s wages have risen considerably. For example, in April 2015, average hourly earnings for service-providing employees reached $24.58, according to the Bureau of Labor Statistics. During this same month, average hourly earnings for U.S. manufacturing employees was $25.12.

With the introduction and availability of new and inexpensive technology, led by telecommunications, computers and the internet, millions of people and companies worldwide have the ability to purchase more services from the United States. These include computer and data processing services; wholesale, financial, transportation and communication services; architectural, engineering and surveying services; accounting, research and management services; and motion pictures.

It is anticipated that the export of business, professional and technical services (accounting, advertising, engineering, franchising, consulting, public relations, testing and training) will increase rapidly over the next several years. Both the TTIP and TPP strive to strengthen service sector exports — an essential factor in the future of American economic growth.

This articles appeared in Global Impact, a Great American Insurance Group publication.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

More Articles | Speaker Programs | Speaker Demo | Videos | Services

You don't have permission to view or post comments.

Quick Search

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!