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Harvard's Lawrence: Without TPP, China Will Set Rules (Audio) · Bloomberg Intelligence

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  Speaker 1: Charlie Pellett, and that's a Bloomberg Business Flash. This is
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  Speaker 1: taking Stock with pin Box and Kathleen Hayes on Bloomberg Radio,
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  Speaker 1: broadcasting live from Atlantic Wharf in Boston, site of Smith
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  Speaker 1: and will Lensky's talking about a wharf that makes me
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  Speaker 1: think of trade and Transpacific Partnership. President Obama saying yesterday
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  Speaker 1: that he expects the t p P to pass the
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  Speaker 1: US Congress after the election. To find out more about
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  Speaker 1: this trade agreement, we have Robert Lawrence. He is Albert L.
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  Speaker 1: Williams Professor of International Trade and Investment for the Harvard
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  Speaker 1: Kennedy School, and he joins US now. He's also a
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  Speaker 1: senior Fellow at the Peterson Institute for International Economics. Robert Lawrence,
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  Speaker 1: thank you very much for being with us. What's your
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  Speaker 1: analysis of the TPP as it would affect businesses in
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  Speaker 1: the United States. Well, I think on balance, it's a
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  Speaker 1: very positive agreement. It's an agreement between twelve countries. They
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  Speaker 1: constitute about of the world economy, and it's going to
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  Speaker 1: achieve low trade barriers among them, almost remove all of
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  Speaker 1: those not only at the border, but also deal with
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  Speaker 1: a lot of the rules that govern international trade. So
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  Speaker 1: it's going to offer a lot of opportunities, especially actually
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  Speaker 1: for smaller businesses who depend more on e commerce and
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  Speaker 1: other ways of reaching markets abroad. So when we do
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  Speaker 1: an analysis of the potential gains of the agreement by
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  Speaker 1: night By, they amount to something like a half a
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  Speaker 1: percent of g d P about a hundred and thirty
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  Speaker 1: billion dollars. So I think on balance it's going to
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  Speaker 1: be it would be a positive development. Give us an
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  Speaker 1: example of a rule that will be chain that would
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  Speaker 1: be benefit beneficial state to the United States, what's been
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  Speaker 1: a hindrance, even if it's very specific, to give us
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  Speaker 1: kind of a sense of what this would mean to
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  Speaker 1: a national business and a national even worker. Well Um,
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  Speaker 1: one of the areas in which rules are going to
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  Speaker 1: would be agreed relate to service and where they could
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  Speaker 1: be located. So an American firm that wants to service
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  Speaker 1: the entire Asian market might find an economic to have
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  Speaker 1: its server in only one country and to then UH
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  Speaker 1: serve countries and have its Internet UH sales occur throughout
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  Speaker 1: the whole market. Well Um. Today, individual countries can require
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  Speaker 1: those servers to be located within the country, but as
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  Speaker 1: a result of the agreement, countries will no longer be
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  Speaker 1: able to do that except in the financial area, So
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  Speaker 1: that would be an example. But there are many standards
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  Speaker 1: which country which firms have to meet in order to
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  Speaker 1: sell their products in different countries, and this would make
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  Speaker 1: headway in making regulations and much more transparent and much
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  Speaker 1: easier to deal with. Can you address the issue of
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  Speaker 1: US workers will they be displaced if the t p
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  Speaker 1: P has passed. Some workers would be displaced as a
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  Speaker 1: result of TPP. Obviously, if we're opening our market in
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  Speaker 1: return for foreign countries opening, there's there is going to
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  Speaker 1: be some dislocation. So we've come up with estimates of
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  Speaker 1: what the magnitudes of that dislocation is likely to be.
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  Speaker 1: And for individual workers this can be very painful. But
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  Speaker 1: what we find is that the TPP is going to
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  Speaker 1: be phased in over a period of about ten years,
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  Speaker 1: and even during the period when it's being phased in,
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  Speaker 1: the aggregate benefits to the economy are about twelve times
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  Speaker 1: costs to the workers who are dislocated, and then once
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  Speaker 1: the workers have adjusted, the economy is left with the benefits.
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  Speaker 1: So over the medium term we're left with something like
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  Speaker 1: a hundred and thirty billion dollars worth of net benefits
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  Speaker 1: per year. However, you also acknowledge, and it seems to
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  Speaker 1: me are also seeming to urge that we don't just
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  Speaker 1: ignore and say, oh, the net benefits gonna be great
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  Speaker 1: in ten years. We acknowledge that if if I'm them
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  Speaker 1: on losing my job, it's not worth it at all,
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  Speaker 1: that we need trade adjustment assistance, that we need wage insurance.
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  Speaker 1: Explain to us how that would work. Are the provisions
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  Speaker 1: for that right now, say in the proposals person Obama's backing,
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  Speaker 1: So there are. We do have a program which is
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  Speaker 1: called Trade Adjustment Assistance, although in my view it's much
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  Speaker 1: too small for individual workers who lose their jobs trade
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  Speaker 1: or for any reason. That's a very painful experience. Uh.
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  Speaker 1: The estimates of that they could lose is something like
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  Speaker 1: one point four times their annual income over their whole lifetime.
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  Speaker 1: So we, I believe need to improve our programs. The
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  Speaker 1: existing programs do UH provide additional assistance in addition to
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  Speaker 1: unemployment insurance to workers who are dislocated, but I think
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  Speaker 1: we should be expanding those um not only for workers
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  Speaker 1: who lose their job because of trade, but workers who
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  Speaker 1: lose their job for other reasons beyond their own control. UH.
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  Speaker 1: Some workers, many workers who lose their jobs can find
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  Speaker 1: alternative work each sometimes even at higher pay, But for
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  Speaker 1: some they're forced to take lower wages. And one component
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  Speaker 1: that I believe ought to be expanded is what I
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  Speaker 1: call wage insurance, and that would mean that if you
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  Speaker 1: lose your job and you take a new job at
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  Speaker 1: a lower wage for some period of time, the government
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  Speaker 1: would compensate you. And we find that if you take
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  Speaker 1: the aggregate benefits from TPP, you can easily afford to
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  Speaker 1: have a much more generous program for those workers who
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  Speaker 1: are dislocated and who lose. If the TPP does not
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  Speaker 1: pass the US Congress, will the other countries that are
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  Speaker 1: part of the t p P. Will they reap the
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  Speaker 1: benefits well? UH, specifically, probably not through keeping the same TPP,
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  Speaker 1: because a requirement for TPP to go into effect is
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  Speaker 1: in fact that countries which account for eighty five pc
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  Speaker 1: of the of the income UH sign it. But it
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  Speaker 1: is very likely that if the United States rejects the
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  Speaker 1: t p P or does not go along, that the
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  Speaker 1: Asian countries who are who have concluded the t p
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  Speaker 1: P will liberalize among themselves. It's also the case that
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  Speaker 1: China is leading another big trade negotiation in which several
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  Speaker 1: of the TPP partners are participating. So we would be withdrawing,
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  Speaker 1: but China will be leading. And in a sense, if
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  Speaker 1: we don't contribute to setting the rules of the trading system,
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  Speaker 1: what we're going to land up with in Asia is
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  Speaker 1: a trading system in which China sets the rules. You're
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  Speaker 1: the author of many books, one of them Crimes and
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  Speaker 1: Punishments Retaliation into the w t O. Co author of
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  Speaker 1: several books, but one of my favorite titles is globe
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  Speaker 1: a Phobia. Confronting fears about open trade. Is global globe
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  Speaker 1: phobia more rampant now, do you? I mean? Certainly Donald
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  Speaker 1: Trump's cry that that free trade is not fair trade
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  Speaker 1: is resonating with a lot of voters. Absolutely so. I think, um,
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  Speaker 1: we have had poor economic performance in the US, especially
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  Speaker 1: when it comes to raising the median incomes of the
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  Speaker 1: average American, and what Donald Trump has done is to
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  Speaker 1: seize on and several other candidates have seasoned on trade
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  Speaker 1: as the big source of all of these problems, both
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  Speaker 1: the slow wage growth and the erosion of manufacturing employment.
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  Speaker 1: If you look carefully what you find is that trade
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  Speaker 1: has been a contributor, but it's a relatively small contributor. Moreover,
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  Speaker 1: if you were to interfere with trade, as Donald Trump
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  Speaker 1: is advocating, if you start to put barriers at the border,
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  Speaker 1: you're actually going to cause more job losts and more
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  Speaker 1: just location. You know, about two thirds of all of
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  Speaker 1: the products that we import into the United States are
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  Speaker 1: not finished products. There are parts, they're intermediate products. If
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  Speaker 1: you think of your Apple telephone, at least of your iPhone,
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  Speaker 1: you'll realize that it has parts from all over the world.
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  Speaker 1: So if you come along and you put tariffs on
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  Speaker 1: those imports, what you're gonna do is prevent the man
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  Speaker 1: of factoring that's currently taking place in the United States
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  Speaker 1: from actually a curry. So that would be extremely disruptive.
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  Speaker 1: So I think, um, not only is trade being villainized
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  Speaker 1: as the source of all our economic problems. It has
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  Speaker 1: contributed some, but the estimates off instance, when it comes
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  Speaker 1: to manufacturing jobs, it's probably accounted for one sixth of
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  Speaker 1: the loss of the manufacturing jobs. But interfering with trade
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  Speaker 1: and erecting new trade barriers certainly isn't part of the
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  Speaker 1: solution to our problems. Robert Lawrence, thank you so very much.
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  Speaker 1: You're most welcome. You just I think enlightened everyone listening
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  Speaker 1: to the the reality and an intelligent analysis of trade,
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  Speaker 1: the pros and the cons. The pros outweighing the cons.
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  Speaker 1: But there's the ways he said to offset job loss,
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  Speaker 1: wage loss. We'll look forward to having you back on
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  Speaker 1: the show. Is this debate over trade continues? Robert Lawren
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  Speaker 1: is the Albert O. Williams Professor of International Trade Investment
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  Speaker 1: at Harvard's Kennedy School and Senior Fellow at the Peterson
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  Speaker 1: Institute for International Economics, and Kathleen Hayes, along with Pim Fox,
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  Speaker 1: this is remembered