International trade has become a negative phenomenon in the US election cycle in 2016 as well as influenced the BREXIT. Last year, on October 5, 2015, US President Obama used the “fast track powers” granted to him by Congress to seal the Trans-Pacific Partnership agreement. TPP involves the US and 11 Pacific nations that encompass 40% of global trade (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US, and Vietnam).
But is US trade a lost cause and is the signing of TPP too late to be helpful for US trade? The US share of the Asia-Pacific region’s imports declined about 43% from 2000 to 2010. Gaining that back would mean an additional $600 billion annually by 2020, supporting some 3 million US jobs. Now, other countries are exporting much more to these countries, and at an increasing rate. Why is that?
One reason is that the US has a history of being reluctant to enter into Regional Trade Agreements. And it appears US politicians are strangely becoming even more reluctant to do so. The US-Israel RTA, the oldest trade agreement involving the US, recently celebrated 30 years (it began on September 1, 1985). Since then, the US has signed 14 RTAs covering some 20 countries (with 18 more being deliberated).
But, during the same 30-year period the world has seen 256 new trade agreements, as registered with the World Trade Organization (see my article in The Conversation for more details). Nineteen RTAs were in force in 1985 worldwide and now there are 275, with 132 RTAs being implemented just in the last decade.
These RTAs, when the US is not involved, create barriers and constraints that have an effect on market opportunities and profits of US companies. It is common to see tariffs that are five times higher in foreign markets than the US average. Another way to look at it, the US ranked 130 of 138 nations in “tariffs faced” by the country’s exports.
The battle lines on TPP – we still don’t know if it will pass Congress in the months to come – seem to be the same as for most RTAs. Special interest groups don’t like the potential undermining of US regulations. Labor unions argue that jobs will be lost to low-salaried countries. And RTAs will help only large corporations.
Is this really true? Not really. Barriers to exporting are significantly affecting small and medium-sized US enterprises as well. And SMEs represent 98% of US exporters. These SMEs are companies with fewer than 500 employees, sales of less than $33.5 million, and restricted to a limited geography. Exporting is their trade alternative. We need more trade agreements, better deals, and opening of world markets for all US companies.