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So Now the TPP Is Just a Massive Tax Cut? Hardly...

The latest sales pitch on the recently concluded Trans-Pacific Partnership (TPP) is that it is a massive tax cut, with 18,000 tariffs (taxes on individual products from the United States to other countries) being eliminated. While 18,000 tax cuts sounds great in a vacuum, it’s not the whole story. Here are some things you should know as you evaluate this latest claim:

1. These tariff cuts can’t grow our exports all that much. Worldwide, tariffs already are extremely low because of years of tariff-reducing negotiations through the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). According to Mary Amiti and Benjamin Mandel of the Federal Reserve Bank of New York, the applied tariff rate for about 90% of U.S. exports to TPP partners is already zero. So only 10% of U.S. exports to TPP countries face any tariffs at all—and half those products face tariffs of 5% or less. This means the potential for export growth from the TPP is actually pretty small. There are far better ways to grow our economy—infrastructure investment is one example. 

2. These tariff cuts may not grow our economy at all: They can be wiped out overnight by currency devaluation. The point of reducing tariffs is to bring the prices of U.S. and foreign goods into balance. But that balance can be totally undermined if, for example, Japan artificially reduces the value of the yen, which would make Japanese goods cheaper and U.S. goods more expensive. Currency devaluation acts in the same way a tariff does: as a tax on U.S. exports. Because the TPP does not contain ANY rules on currency, countries are free to devalue their currency at any time. 

3. The TPP forces Americans to pay a very high price for these tariff cuts. In exchange for reducing the Japanese tariff on shoes, for example, (which are not a major U.S. export), the U.S. government has agreed to weaken our Buy American policies and provide thousands of new foreign investors with the right to sue our government, in front of panels of private lawyers, if their “expected profits” are reduced by U.S. labor, environmental and public health or safety laws. Foreign investors can even sue over local zoning and permitting decisions they don’t like! An end run around U.S. courts is far too high a price to pay for what amounts to a handful of tariff reductions. 

4. In exchange for the “18,000 tariff cuts” abroad, the United States has agreed to reduce tariffs on foreign goods coming into the U.S. This could be a great thing—but only if done thoughtfully. The TPP is anything but thoughtful. For instance, it’s going to reduce tariffs on products coming from Vietnam and Malaysia, where child labor, forced labor and denial of free speech and free association rights are prevalent, without requiring those countries to comply with international human and labor rights standards before joining the TPP. It also will reduce tariffs on Japanese cars and trucks, even though the relaxed rules of origin will allow those trucks to be made with up to 80% Chinese contentand China doesn’t have to lower a single one of its tariffs in return because it isn’t in the TPP!  What we need is better trade, not trade at any cost. 

So will these TPP tariff cuts be good for a few in the United States? Very likely they will help some of the largest corporations, particularly those that outsource to China, Malaysia and Vietnam. Will they raise wages and create a brighter future for working families? Unlikely.  

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Trans-Pacific Partnership

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