Unemployment, Inequality and Other Risks
of the Trans-Pacific Partnership Agreement
Jeronim Capaldo, Alex Izurieta, and Jomo Kwame Sundaram
GDAE Working Paper 16-01
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Proponents of the Trans-Pacific Partnership agreement (TPP), the trade and investment treaty recently agreed by the United States and eleven Pacific Rim nations, emphasize the prospective economic benefits, with economic growth increasing due to rising trade and investment. Widely cited projections suggest GDP gains for all countries after ten years, varying from less than half a percentage point in the United States to 13 percent in Vietnam.
In this GDAE Working Paper, the authors employ a more realistic model that incorporates effects on employment excluded from prior TPP modeling. They find that benefits for economic growth are more limited, and they are negative in some countries such as the United States. More importantly, they find that TPP would lead to losses in employment and increases in inequality. This is true particularly for the United States, where GDP is projected to fall slightly, employment would decline, and inequality is projected to increase as labor’s share of income falls.
For this analysis, the authors use existing projections of TPP’s trade impacts and derive alternative macroeconomic projections using the United Nations Global Policy Model (GPM). This model provides more sensible projections because it allows for changes in employment and inequality and incorporates the impact those changes have on aggregate demand and economic growth. A previous GPM-based analysis of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and Europe projected rising unemployment and inequality in Europe with negative impacts on aggregate demand and economic growth.
In this TPP study, the authors find:
- TPP would generate net losses of GDP in the United States and Japan. For the United States, they project that GDP would be 0.54 percent lower than it would be without TPP, 10 years after the treaty enters into force. Japan’s GDP is projected to decrease 0.12 percent.
- Economic gains would be negligible for other participating countries – less than one percent over ten years for developed countries and less than three percent for developing ones. These projections are similar to previous findings that TPP gains would be small for many countries.
- TPP would lead to employment losses in all countries, with a total of 771,000 lost jobs. The United States would be the hardest hit, with a loss of 448,000 jobs. Developing economies participating in the agreement would also suffer employment losses, as higher competitive pressures force them to curtail labor incomes and increase production for export.
- TPP would lead to higher inequality, as measured by changes in the labor share of national income. The authors foresee competitive pressures on labor income combining with employment losses to push labor shares lower, redistributing income from labor to capital in all countries. In the United States, this would exacerbate a multi-decade downward trend.
- TPP would lead to losses in GDP and employment in non-TPP countries. In large part, the loss in GDP (3.77 percent) and employment (879,000) among non-TPP developed countries would be driven by losses in Europe, while developing country losses in GDP (5.24%) and employment (4.45 million) reflect projected losses in China and India.
About the U.N. Global Policy Model:
Documentation of the model, which is housed at the U.N. Commission for Trade and Development, is available in the following UNCTAD paper:
"The UN Global Policy Model: Technical Description," by Francis Cripps and Alex Izurieta, May 2014.
Assuming Away Unemployment and Trade Deficits from the TPP, Timothy A. Wise and Jomo Kwame Sundaram, Triple Crisis Blog, March 20, 2016
Reply to the Commentary by the New Zealand Ministry of Foreign Affairs and Trade, Alex Izurieta, GDAE Commentary, March 2016
Some Real Costs of the Trans-Pacific Partnership: Lost Jobs, Lower Incomes, Rising Inequality, Jomo Kwame Sundaram, GDAE Policy Brief, February 2016
Are the Peterson Institute Studies Reliable Guides to Likely TPP Effects?, Jomo Kwame Sundaram, Triple Crisis Blog, February 8, 2016
Modeling TPP: A response to Robert Z. Lawrence, Jeronim Capaldo and Alex Izurieta, GDAE Globalization Commentary, February 3, 2016
TPP’s Threat To Multilateralism, Jomo Kwame Sundaram, Inter Press Service, Feb 16, 2016
Over-estimating gains from TPPA , Jomo Kwame Sundaram, The Malaysian Insider, Feb 11, 2016
TPP: Lessons from New Zealand, Jomo Kwame Sundaram, Inter Press Service, Feb 2, 2016
Reconsider TPPA in public interest, Jomo Kwame Sundaram, The Star Online, Feb 2, 2016
The Trans-Pacific Partnership Fraud, Jomo Kwame Sundaram, The Sun Daily, Jan 24, 2016
Economists Sharply Split Over Trade Deal Effects, The New York Times, Feb 1, 2016
Modeling the economic impact of the TPP, NPR's Marketplace, Jan 25, 2016
Pacific Trade Pact May Spare U.S. Workers Overall But Slow Factory Hiring, Study Says, Wall Street Journal, Jan 25, 2016
Le traité transpacifique signé, mais pas encore ratifié, Le Monde, Feb 4, 2016
Signing of Trans-Pacific Partnership trade deal opens up tough battle in U.S., Los Angeles Times, Feb 4, 2016
TPP threatens to worsen inequality, The Hill Times, Feb 2, 2016
The Changing Politics of Free Trade — Politicians Are Finally Listening, Patrick Woodall, Moyers & company, April 1, 2016
TPP Analysis Battle, Round Two, Politico Mar 22, 2016
Clinton's surprise Michigan loss exposes risks for her on trade Reuters, Mar 9, 2016
Sanders on trade job losses Politico, Feb 12, 2016
Fact-checking the campaigns for and against the TPP trade deal, Washington Post, Feb 11, 2016
The Trade Numbers Game, Dani Rodrik, Project Syndicate, Feb 10, 2016
After Signing, TPP's Future Is Hard To Gauge, Forbes, Feb 4, 2016
Clarifying my take on dueling trade models, Jared Bernstein, On the Economy, Feb 2, 2016
TPP Debate Rages On, Politico, Feb 2, 2016
Dueling TPP Studies, Politico, Feb 1, 2016
TPP in the Spotlight as February Signing Date Approaches, Bridges, Volume 20 - Number 3, Jan 28, 2016
TPP's Economic Impact Will Be Fewer Jobs, More Inequality, New Study Says, Huffington Post Canada, Jan 20, 2016
'More Realistic' Modelling Of TPP's Effects Predicts 450,000 US Jobs Lost, Contraction Of Economy, Glyn Moody, Techdirt, Jan 19, 2016
TPP destruirá empleos en todos los países socios, El Economista, Jan 18, 2016
'Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement', TWN Info Service on Free Trade Agreements, Jan 15, 2016
Obama makes TPP push in SOTU, Politico, Jan 13, 2016
Making Sense of the TPP
On April 1, 2016, Jeronim Capaldo spoke on a panel of international experts at "Making Sense of the Trans-Pacific Partnership." The event, hosted at the University of Ottawa, featured a keynote speech by Nobel Prize-Winning Economist Dr. Joseph Stiglitz. Stiglitz supported GDAE's research, stating "Tufts University says [the benefits of TPP] are negative and I think they are probably right." Capaldo followed with a talk on “Unemployment, Inequality and other Risks in the TPP,” which detailed the findings of the GDAE working paper.
Job Loss Report
Jomo Kwame Sundaram was interviewed by the Canadian radio program Ryan Jespersen Show on January 22, 2016 regarding the projected outcomes from the TPP.
The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability, Jeronim Capaldo, GDAE Working Paper 14-03, October 2014
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Read more from GDAE’s Globalization and Sustainable Development Program
The Global Development and Environment Institute’s Globalization and Sustainable Development Program examines the economic, social and environmental impacts of economic integration in developing countries, with a particular emphasis on the WTO and NAFTA's lessons for trade and development policy. The goal of the program is to identify policies and international agreements that foster sustainable development.