While presidential candidates have continued to focus on the negative aspects of U.S. trade agreements, Commerce Secretary Penny Pritzker visited San Diego, California, on Wednesday, August 3, 2016, to promote the TransPacific Partnership (TPP), a trade pact that offers important benefits for San Diego's innovation economy.
Until their recent exposure in the presidential campaigns, trade agreements were only the subject of policy wonks and those involved directly in trade. However, both the Democratic and Republican presidential candidates have expressed views that trade pacts cause the U.S. to lose jobs at a time when some U.S. manufacturing has gone offshore. Without understanding the national benefits of trade agreements, it is easy to see how those affected by factory closures would react negatively the TPP. What has been missing from the discussion is how trade agreements benefit innovative regions like San Diego.
Two of the major benefits of the TPP include patent protection and leveling the playing field on tariffs. In addition, the pact would limit restrictions on global cloud computing and the movement of data across borders.
Cowhey says the TPP will equalize tariffs while also providing intellectual property (IP) protection.
According to Peter Cowhey, Dean of the University of California San Diego's (UCSD) School of Global Policy and Strategy, the U.S. has much lower tariffs than any TPP country other than Canada. U.S. tariffs average 7.5 percent. Australia's tariffs are 11.9 percent, Japan averages nine percent, and some other TPP countries have tariffs on U.S. goods as high as 25 percent.
Cowhey also says the TPP will equalize tariffs while also providing intellectual property (IP) protection. IP is important to San Diego, the third most patent-intensive region in the world. In addition, more than 97 percent of the region's exports are sold to TPP markets, collectively worth more than $22 billion. Cowhey referenced his remarks from a report UCSD recently released, "San Diego and the Trans-Pacific Partnership."
In an August 6, 2016, editorial, the New York Times said "trade has hurt some factories and workers in the United States because they have not been able to compete with foreign businesses that enjoy lower-cost labor as well as subsidies and other benefits from their governments." The newspaper went on to opine that "trade isn't the main force destroying good jobs, but at the moment, it serves as an easy target for an electorate anxious about the economy and looking for answers . . . Many economists believe that automation has had a much bigger impact."
The San Diego/Tijuana region is truly a border community with two-way benefits.
However, the TPP, and NAFTA before it, are important to border regions like San Diego. Cross border trade between San Diego and Tijuana has an economic value of $6 billion to the San Diego region. Another $7 billion in value is lost because of long wait times at the border.
Forty-seven million people legally crossed the border into the U.S. at three San Diego ports of entry in 2014, and an equal number crossed in the other direction. According to a recent SANDAG study, 36 percent of crossers make the trip to work. Of those, 45 percent work in Mexico and 44 percent work in the U.S. The San Diego/Tijuana region is a truly a border community with two-way benefits.
The San Diego Union-Tribune, in an August 8, 2016, editorial said "the standard story about the fate of American manufacturing is incomplete. It blames the loss of U.S. factory jobs mainly on foreign imports and the move of American firms abroad. That's part of the problem, but a larger cause is ... "rapid productivity growth." The editorial cited the work of Harvard economist Robert Lawrence and his assertion that "better manufacturing methods and technologies mean that fewer workers can produce the same output."
The Union-Tribune editorial used steel as an example. While employment in the steel sector has plummeted, "U.S. steel production is roughly where it's been for decades, between 90 million and 120 million tons a year ... dozens of steel plants have closed. But dozens of more efficient plants have opened. Productivity (aka, efficiency) has increased dramatically."
One of the reasons to manufacture in another country is to be closer to the market where products are sold. While Ford has moved a plant from Detroit to central Mexico, Toyota has a plant in Tijuana. According to the CEO of the San Diego Regional Chamber of Commerce, Jerry Sanders, every Toyota Tacoma pickup sold in the U.S. is made in Tijuana. Toyota benefits from being close to the market and from Tijuana's cost-effective and high-quality workforce, but the U.S. benefits, too.
According to a study by the Wilson Institute, every dollar spent on products manufactured in Mexico returns forty cents to the U.S. because many components in Mexican products are made in the U.S. Compare this to products manufactured in China, where only four cents is returned to the U.S. for products made in that country. Rather than focusing on the U.S. manufacturing plants moving to Mexico, it would be more productive to bring U.S. products manufactured in Asia back to Mexico where production would return more direct economic benefits to the U.S.
The Union-Tribune says that "What matters is the economy's ability to offset the losses with new jobs and opportunities. That is the ultimate test."
"Being against globalization is like being against breathing - it's so much a part of the world we live in." - Dr. Jim Yong Kim, World Bank
Dr. Jim Yong Kim, the head of the World Bank agrees. In an August 3, 2016 interview on BBC Radio's World at One, he says the middle class in high-income countries are the ones who have done poorly because of globalization.
"In every country in the world, the answer is not to close off borders, the answer is not to become more xenophobic, but to be serious about what it will take to build the kind of workforce that will take those really great jobs that are coming in the future.," Kim said. "Being against globalization is like being against breathing - it's so much a part of the world we live in."
In her visit, Secretary Pritzker called the San Diego region "a leader in phones, drones and genomes" with "a winning formula for success in the 21st century." She acknowledged that even while the nation's economy continues to grow, the benefits are not felt equitably across all sectors and regions. So the challenge becomes creating those new jobs in areas negatively impacted by trade agreements while not impacting innovative economies like San Diego which stand to benefit by focusing on the jobs of the future.