Americans Need to Export More and Not Less

It is unclear what free trade opponents are against in the current trade debate. Is it about Trade Promotion Authority (TPA), Trans-Pacific Partnership (TPP), or something that has nothing to do with free trade? Contrary to claims that trade agreements have been big failures and disastrous to American workers and the U.S. economy, the numbers decisively tell a success story. The U.S. needs to export more and not less.

Since its first Free Trade Agreement (FTA) with Israel in 1985, the United States has implemented 14 preferential trade agreements with 20 countries located in the Americas, North Africa, the Middle East, and Asia. Nearly half of U.S. merchandise exports went to these FTA partner countries. While having more than $524 billion trade deficits in manufactured goods in 2014, the U.S. enjoyed a $55 billion trade surplus in manufactured goods with FTA partners.

We applied trade data to estimate the impacts of FTAs on U.S. exports over the past 30 years. Our analysis indicates that FTAs spurred more than $41.9 billion and 7.3% of U.S. manufacturing exports to FTA partners. As expected, our analysis shows that Americans export intellectual property (IP)-intensive products such as pharmaceuticals, computer and electronic products, transportation equipment, chemical products, and medical devices; all areas where Americans have comparative advantages in the global markets. We also found that FTAs spurred over $34.2 billion in exports from IP-intensive industries, or 10.9% of IP-intensive exports. In comparison, exports of non-IP-intensive industries grew by approximately $7.7 billion, or 3.0% of U.S. exports, to those FTA partner countries.

By reducing and eliminating tariffs and non-tariff barriers, trade agreements have boosted exports which consequently raised outputs, employment, and wages in the exporting countries. Our analysis show that IP-intensive manufacturing industries added more jobs during the most recent economic recovery period while non-IP-intensive manufacturing industries cut more jobs during the economic downturn. While IP-intensive manufacturing industries employ nearly 30% of American manufacturing workers, they account for nearly 50% of gross output (total sales) of manufacturing industries. IP-intensive manufacturing industries pay 50% higher wages than non-IP-intensive manufacturing industries (approximately $60,000 compared to $40,000 per employee annually).

All in all, the numbers are favorable for U.S. trade agreements. Although U.S. exports have increased substantially in the past 30 years since its first trade agreement with Israel, the share of U.S. merchandise exports has declined from 11.2% to 8.6% of world exports as world exports have increased more than ten times. With the rapid increase in global economic integration, it makes perfect sense that American leaders are in search for FTA partners.

IP Means Jobs and Economic Growth in the TPP

While the prospects for a renewed Trade Promotion Authority are up in the air, the White House and the United States Trade Representative are continuing negotiating rounds for the completion of the Trans-Pacific Partnership (TPP) agreement. Last week, Vice President Biden voiced support for the administration on the completion of a robust TPP agreement that would bring economic and strategic value to the United States. As countries and their negotiators are in Singapore this week, Singapore's Prime Minister Lee Hsien Loong says the agreement is 'very close' to completion. 

The TPP is an important agreement for the U.S. economy and the 11 partner countries. New trade agreements open new markets for U.S. businesses both small and large as well as provide consumers with access to new products. Free trade is a boon to economic productivity, which creates more jobs at higher wages. The U.S. stands to benefit from the TPP due to the value of our products and goods, specifically intellectual property (IP) intensive industries

IP-intensive industries, those that invest more on R&D per employee than the national average, outperform non-IP-intensive industries across economic measures. IP protection is an essential component for innovation, which is the main driver of economic growth across countries. IP protections are instrumental in facilitating the transfer of technology, attracting foreign direct investment, and localized innovation

At the end of last year, we released a new report showing the economic benefits of IP for the U.S. economy and partner countries in a prospective TPP. Here's what we found:

  • Based on the trade impacts of ten existing U.S. FTAs with 16 countries, the formation of TPP is expected to boost U.S. manufacturing exports by $26 billion, create 38,811 jobs, generate $2.2 billion in wages, and add $11 billion to the U.S. GDP.
  • Altogether, the formation of the TPP is expected to produce $47.5 billion in manufacturing sector sales, create 107,051 direct jobs, generate $4.8 billion in wages, and add $15.4 billion in gross domestic product for all 12 member countries. Two-thirds of these economic benefits come from IP-intensive industries.

We've visualized our findings through an infographic to show the powerful figures of our report:

IPinTPP-Infographic.png

Our report underscores the important role of IP and IP protection. Since more than three-quarters of U.S. exports to foreign affiliates are in IP-intensive industries — which rely on patents, trademarks, and trade secrets, IP protections based on current U.S. law need to be adopted to secure the long-term economic growth. The stronger the protection of IP rights under the TPP agreement, the greater the value of trade, leading to greater economic growth, more jobs, and higher incomes across 12 countries.

 

 

 

Intellectual Property Critical to Maximizing Trans Pacific Partnership

New Report Reveals Enormous Benefits of TPP Only Realized if Strong Protections in Place to Protect Innovation, Spur Job Creation in all Member Countries.

Washington, D.C. (December 17, 2013) – NDP Analytics today released a new study analyzing the substantial economic boost that countries participating in the Trans Pacific Partnership (TPP) stand to achieve from one of the most ambitious free trade agreements in history. The report, titled “The Economic Benefits of Intellectual Property Rights in the Trans-Pacific Partnership,” finds that two-thirds of the total economic benefits of the TPP would come from intellectual property (IP)-related manufacturing industries. The authors argue that stronger protection of IP rights in the TPP leads to greater economic growth and development across all participating countries.

“There is no question that strong intellectual property protections benefit all TPP nations, and that IP is the linchpin to maximizing the full potential of the TPP,” said Nam D. Pham, PhD, Managing Partner of NDP Analytics. “As our latest research shows, critics of IP rights in the TPP both at home and abroad are far off base. Indeed, an agreement that weakens IP rights will significantly dilute any economic benefits for all participating countries, and could cause a backslide in future innovation across all TPP partners.”

The study finds that a TPP agreement including IP protections at least as strong as current U.S. law would have the following effects:

  • Boost U.S. manufacturing exports by $26 billion and increase U.S. GDP by $11 billion, two-thirds of which would be derived from IP-intensive industries

  • Create up to 48,000 new jobs in the U.S. economy

  • U.S. companies’ exports to their foreign affiliates in the TPP result in $6.4 billion combined additional increase in local GDP and over 68,000 new jobs created in those nations

To read the full report, please click here. For media inquiries or additional information, please contact Justin Badlam at (202) 450-1369 or justinbadlam@ndpanalytics.com.