Tuesday, January 6, 2015
What People (Expecially Democrats) Need to Know About Trade Agreements and TPP
As a Democrat-American who negotiated in over 50 countries, promoting American-made products which create jobs here, I personally experienced how we lost jobs because we DIDN'T have a TPP. Here is why:
One of the BIG votes coming up in 2015 will be on the TPP, the "Trans-Pacific Partnership" trade agreement between the U.S. and several Asian countries. Most of the (very vocal) opposition is from Democrats. Since I am one of the few democrats (having run in the 2014 Democratic primary for U.S. Senate) who has extensive international commercial experience, I would like to explain what trade agreements actually do --and don't do-- for American jobs that few people know.
In the 70's and 80's I worked for two Fortune 500 companies based in Texas. Most of my activities involved selling American products overseas -- products made here in the USA. I worked and negotiated in over thirty countries from Europe to South America to Asia. After the 80's oil bust I was laid off but put my expertise to work for small companies and individuals and went to another twenty countries as an entrepreneur. Details of those experiences (the good, the bad and the ugly) are in my book "Better Times Ahead April Fool."
Few people know that the United States has very low tariffs but most other countries have high tariffs. Therefore, there is no barrier for a foreign company to sell in the U.S. (unless it is subject to a quota like sugar) but if a U.S. company wants to sell overseas, we are at a price disadvantage because of their higher tariffs.
Here is an example from real life.
A few years ago, Brazil wanted to buy telecommunications equipment costing about $200 million dollars. AT&T in the U.S. wanted the business and so did companies in Canada. However, Canada had a free trade agreement with Brazil that eliminated the 10% tariff on equipment imported into Brazil. The U.S. did not have such an agreement, meaning that the Brazilian buyer would have to pay an extra $20 million tariff on the U.S. equipment. That $20 million cost difference was a deal killer, so the contract and the manufacturing jobs for that project went to Canada instead of the U.S. --meaning that Canadian workers got to build the equipment to export to Brazil instead of Americans. This is one reason we export less than we import.
The above Brazil example happens more than Americans realize. In short, the lack of trade agreements is costing Americans jobs and exports. Keep that in mind as the hysteria over the TPP begins. It's been called "NAFTA on steroids."
Some people think that a trade agreement like NAFTA and TPP moves jobs overseas. I can tell you that jobs move overseas without a trade agreement! Here's why.
Before NAFTA, if my Fortune 500 (or a small) company sold a pump or motor for a power plant to Mexico, the tariff would be 10% (or more). In India, the tariff could be up to 70%! In order to avoid that tariff companies would avoid it by licensing a manufacturer in Mexico to make it there. Since it was no longer an import, it avoided the tariff and brought down the cost to be competitive. With NAFTA, the 10% Mexico tariff was eliminated so the equipment could be made in a U.S. plant and shipped to Mexico!
Of course, some companies moved to Mexico but they could have done that anyway without the trade agreement. It happens all the time, even before the GOP Congress under President Bush enacted tax deductions for moving a plant or headquarters overseas to duck U.S. taxes (and adding to our deficit.)
In 1994, when NAFTA was signed by President Clinton, U.S. trade with Mexico was a mere $297 billion. In 2012, trade had increased to $1.2 TRILLION! Experts say that it has given our growth up to .5% boost. Yes, there were winners and losers -- American corn exports to Mexico boomed after NAFTA, driving a lot of small inefficient Mexican farmers out of work. By the same token, makers of brooms in the U.S. couldn't compete because of our labor costs for a simple product.)
Bottom line: NAFTA allowed us to compete more effectively with the European Union (the largest market in the world) and with China. The EU is basically a massive trade agreement between European countries. They took it a step further with a common currency.
Keep in mind that even without a trade agreement with China Walmart forced many of its suppliers to set up manufacturing in China to cut costs (I have been to Shenzhen where most of them were set up.) However, if one of the U.S. companies I represented wanted to sell their product in China, they would have to pay a steep tariff (up to 22% for cars) to get their product imported. Automobiles are a great example. That's why a lot of car companies set up plants in China -- because there is no trade agreement in place bringing down tariffs and costs.
That is what the proposed TPP agreement would do--open Asian markets to U.S. made products. Its details are still confidential until Congress gets to review them (NAFTA was done the same way), but it will help American companies because they have high tariffs and we do not. As I said, they can already sell into the U.S. without a trade agreement and without paying tariffs - no problem! The TPP trade agreement would give American companies more access to their markets, which would create jobs here in the U.S. and increase our exports. Every $1 billion in exports creates over 25,000 jobs in the U.S. according to the Department of Commerce.
So yes, as a (free trade) Democrat with international experience, I know how trade agreements help us and how we lose export sales without such agreements. Of course these agreements should include labor and environmental protections. A trade agreement is the only way these issues can be addressed as they won't be if a company simply sets up a plant inside a country.
I do not believe that President Obama would support any agreement that does not benefit American workers. Despite the hysteria over NAFTA I witnessed in the 90's, the facts have shown that it has done far more good than harm to our economy. My bet is that the TPP will do the same.
For details on my personal experiences globally promoting American goods and services around the world, check out my EBook "Better Times Ahead April Fool." It is a true, global adventure story - the farm kid who ended up negotiating from China to India on behalf of Americans and their products and technology. With photos so YOU can see the difference and know what we face.