AMERICA’S INCREASINGLY skewed income distribution is finally getting the attention it deserves. The bad news is that some people might use the issue to justify otherwise unjustifiable policy agendas. Case in point: Opponents of a free-trade agreement among the United States and 11 Pacific Rim nations are claiming that it will destroy U.S. jobs, thus exacerbating income inequality in this country, just as previous deals, such as the North American Free Trade Agreement, allegedly did.
This is an old argument and, admittedly, plausible in theory: All else being equal, firms move where labor is cheapest. In practice, it is hard to isolate the degree to which the post-1979 surge of inequality is due to expanded trade with lower-wage nations such as China and Mexico rather than to, say, technology or education. Timothy Noah’s review of economic literature, reported in his recent book on inequality, “The Great Divergence,” produced an estimate of 12 percent to 13 percent. Not trivial but hardly decisive. And without trade agreements, globalization would still be affecting U.S. employment, only on less advantageous terms to the United States.
In any case, President Obama’s proposed Trans-Pacific Partnership (TPP) would hardly increase U.S. free trade with low-wage nations. By far the largest proposed partner is Japan, which has slightly higher hourly compensation in manufacturing than the United States does. Given Japan’s protectionist history, the TPP will likely open its markets more to U.S. goods than vice versa. Of the other nations involved, Canada, Mexico, Australia, Chile, Peru and Singapore already have free-trade agreements with the United States, so the TPP mainly elaborates on the status quo. Brunei and New Zealand are lightly-populated, distant, high-income nations — hardly destinations for “offshoring” U.S factories. Malaysia is slightly higher-income than Mexico.
That leaves Vietnam — the only true poverty case in the group and a human rights violator to boot. The United States had a $15.6 billion trade deficit with Vietnam in 2012, according to the Census Bureau. Suppose it were to double under the TPP (unlikely, since the deal also facilitates U.S. exports to Vietnam). The U.S. deficit with Vietnam would still be tiny relative to the overall U.S. trade balance. And the bipartisan congressional sponsors of legislation to speed TPP negotiations have already incorporated new protections to ensure that all TPP countries meet international labor and environmental standards.
The 35 years after World War II represented a kind of golden age of income equality in the United States. But, to the extent it was because of its insulation from imports, it was an artificial one that was bound to change once Germany and Japan recovered, Mexico modernized and China emerged from Maoist isolation. All of the above were hugely positive developments, both for those countries and for the United States. Hundreds of millions of people have been lifted out of poverty. This country has been made more productive by broader international competition and more secure by broader international prosperity. Buoyed by cheap domestic energy supplies, U.S.-based firms and their workers are now poised to prosper anew by meeting the needs of a burgeoning global middle class. If we miss that opportunity, Americans of all income strata will regret it.