Turnbull and the TPP: desperately pressing ahead despite negligible benefits
Turnbull and the TPP: desperately pressing ahead despite negligible benefits.
This morning, Donald Trump formally withdrew America’s inclusion in the Trans Pacific Partnership. And yet so desperate is the Turnbull government to be seen to be doing something about the economy, and so blindly accepting is it of the benefits of trade agreements, that it remains determined to pursue a TPP even without the USA, and without any knowledge of whether such an agreement would benefit our economy.
One of the more ironic things about the TPP is that the Turnbull government uses the same language to argue for it that Donald Trump does to argue against it. This is because both are arguing about the benefits of trade deals in a very one-sided and half true manner.
Donald Trump says he is not against trade – he’s against “bad deals”. In the statement put out by the White House signalling the US government will withdraw from the TPP, it noted it would sign any new trade agreements so long as they “are in the interests of American workers”.
Malcolm Turnbull and the trade minister, Steve Ciobo, would have you believe the same thing.
Politicians love to talk about trade deals as being all about exports.
Yesterday the deputy prime minister Barnaby Joyce made this argument on ABC’s AM program in favour of the TPP, arguing that “rural supplies, rural produce are our second biggest export. We bring a wealth of money back into our nation because of this and this helps us pay for the schools and pay for the hospitals and pay for the defence forces, and pay for the pensions.”
Similarly Steve Ciobo argued that the TPP was good because of “the fact that for example we have the opportunity to capture gains on Australian beef exports to Japan, the fact that we have got the opportunity to capture big gains in streamlining of trade between 11 countries, the fact that we could benefit from financial services exports to 11 countries – these are all really important gains”.
Such a lot of facts and gains.
Except there is little evidence the TPP – or any other free-trade agreements – will bring about such “big gains”.
As the productivity commissionconcluded when it investigated the benefits of such agreements back in 2010, rather than cause “big gains” in exports, mostly exporters just shift from exporting from one country outside the agreement to one within it.
But maybe the TPP is different, maybe the gains are not just “alternate facts”, something that will boost our economy. The TPP however would see us in a partnership with nations such as Japan, Chile, New Zealand, Malaysia with whom we already have “free-trade agreements” – are we really to believe there are still big gains to be had?
Given the trade minister Steve Ciobo told ABC’s AM that there is no economic modelling on a TPP minus the USA, one way to clear it up would be to get the productivity commission to run its eye over the TPP.
One of the recommendations in the commission’s 2010 report was that future trade deals be subject to economic modelling, which “should include realistic scenarios and be overseen by an independent body”.
The commission also argued that “a full and public assessment of a proposed agreement should be made after negotiations have concluded – covering all of the actual negotiated provisions”.
We have not had anything at all like that for the TPP – let alone one without the USA.
So we have to take the facts on faith.
The problem (as I have noted previously) is that the major benefits of free trade comes via cheaper imports, not greater exports.
My favourite graph on trade is the comparison of motor vehicle prices in Australia and inflation since 1972.
Prior to the reduction in tariffs on motor vehicle imports cars increased at the same speed as overall inflation. And yet cars now cost around the same as they did in 1988-89:
That also leads to a standard of living increase – it now costs less to clothe yourself and your family so you can spend more on other things (or save for something like a new car).
But of course the flip side is we no longer make motor vehicles here and we’ve gone from 120,000 people working in the in the textiles industry in the 1980s to now just 26,000.
It’s not much good having cheaper new cars if you’ve lost your high paying job and have had to get a lower paying one.
And that’s why modelling is needed. Which industries stand to benefit, which do not? Is the shift likely to be from low paying to higher paying work as occurred with the demise of the textiles industry? Or will there be a shift from steady high-paying work to lower pay, more part-time/casual work
Do some workers benefit directly from trade agreements through exports? Sure. But not as many as who benefit from cheaper imports.
Competition from international suppliers also forces local producers to be more efficient in order to compete and also sees production increase in industries where Australia has an advantage – such as education or tourism. Overall that is good for our standard of living – we not only can buy more with what we earn, we as a nation produce more with our labour.
But the big economic boosts from freer trade have pretty much all been accounted for and thus agreements like the TPP are unlikely to see any boon in economic growth. We didn’t need a China free-trade agreement to have a mining boom.
When the government tried to sell us the China-free trade agreement it relied on out-of-date modelling that at best suggested it would lead to an average annual increase in Australia’s GDP of 0.04% points – a number so small as to be meaningless.
This is not an argument against free trade, but more that we should be aware that the benefits from the TPP or any other such free-trade agreements are pretty negligible.
But if the government believes their claims about the benefits are actually facts, all they have to do is let an independent body test them. Until then, their facts about big gains are just big claims and best treated with great scepticism.
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