Just the Facts: Trade and Investment Deals Are Bad for Working Families

Last week, the president claimed that critics who say that the Trans-Pacific Partnership (TPP) “is bad for working families… don’t know what they are talking about.”

But the truth is, there is an emerging consensus that globalization has put downward pressure on the wages of most working Americans, and has redistributed income from the bottom to the top. My colleague Josh Bivens has shown that expanded trade with low-wage countries has reduced the annual wages of a typical worker by $1,800 per year. Given that there are roughly 100 million non-college-educated workers in the U.S. economy, the scale of wage losses suffered by this group likely translates to roughly $180 billion. Trade and investment deals such as the Korea-U.S. Free Trade Agreement (completed by President Obama), and the agreement to bring China into the World Trade Organization in 2001 (negotiated by President Clinton), have contributed these lost wages. It’s not surprising that one commentator concluded that “the Trans-Pacific Partnership trade deal is an abomination,” precisely because of its impacts on “low-skilled manufacturing workers and income inequality.”

One of the problems with trade and investment deals, especially with lower-wage countries like Korea and China, is that they often result in growing trade deficits and job losses. The growing trade deficit with Korea has cost more than 75,000 U.S. jobs in the past three years, alone. Meanwhile, between 2001 (when China came into the WTO) and 2013 the U.S. trade deficit with China increased $240 billion, which eliminated an additional 3.2 million U.S. jobs.

The United States has run chronic trade deficits for well over a decade. Rather than lashing out at critics of his trade and investment deals, the president should take steps to reduce our trade deficits. This could be done through the framework of the TPP, but by all accounts, it won’t be.

The leading cause of these trade deficits is currency manipulation, which distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports. More than 20 countries, led by China, have been spending about $1 trillion per year buying foreign assets to artificially suppress the value of their currencies. Ending currency manipulation can create between 2.3 and 5.8 million jobs for working Americans. Several well-known currency manipulators—including Japan, Malaysia, and Singapore—are members of the proposed TPP, and others—including both Korea and China—have expressed interest in joining the agreement.

Unless there is a strong currency provision in the TPP, reductions in the U.S. trade deficit—the most promising route back to sustainable full employment—will be harder to obtain following its passage. Without a currency provision, the TPP is likely to lead to lead to growing trade deficits and job losses. If the president is concerned with working families, he should take action to stop currency manipulation.