Manufacturing exports make up $1.45 trillion or 7.8% of US GDP. Today more than 20% of all US manufacturing jobs depend on exports. The United States is currently renegotiating trade agreements with a number of its trading partners, potentially threatening billions of dollars of US exports and millions of jobs across the country. The top 10 states with the most jobs are California, Texas, Ohio, Michigan, Pennsylvania, Illinois, Indiana, Wisconsin, New York, and North Carolina. Protecting US exports protects US manufacturing jobs.
Threatening to withdraw from the US Korea Trade Agreement (KORUS) should not be taken lightly.
South Korea is an important U.S. trading partner, providing parts and services to American manufacturers and affordable quality products to US consumers. The potential impact of withdrawing from KORUS would be noticeable, especially when it comes to consumer electronics, transportation equipment and chemicals where South Korea ranks fifth, sixth and ninth, respectively, in terms of U.S. imports from individual countries. While some of these products are sold straight to consumers (TVs, cars, smart phones, etc.), other items are purchased by manufacturers to produce goods in the U.S. For instance, chemicals are used by U.S. manufacturers to create anything from packaging to medicines.
Withdrawing from the agreement would increase prices for those goods in the U.S., and there would be no meaningful impact on the trade deficit.
Holiday sales in the U.S. are expected to be $655.8 billion during November and December 2016, according to National Federal Retail forecasts, a 3.6% increase from 2015. Approximately 30% of holiday sales are imported products, ranging from 96% in footwear, 94% in computer products, 92% in apparel and textiles, 86% in communications products to 65% in toys.
Approximately half of all non-agricultural goods entering the United States are duty free while the rest of imported goods aggregate to around 2% tariffs (trade-weighted average rate), calculated by the Office of the United States Trade Representative. Tariffs are customs duties that are levied either on a percentage of the product’s total value or on a specific basis per unit. The U.S. Harmonized Tariff Schedule contains 7,872 tariff lines.
Recent policy discussions of a border adjustment tax includes a tax on all imported products. Like any tax, consumers will bear the burden. A 5% import tax on imported products would raise imported product prices by 5%. To put a 5% import tax into context, consumers would have to pay an additional $3.40 tax for a $68 pair of sneakers imported from Vietnam or an additional $5 for a $100 child’s bicycle imported from China. For $1,000 holiday spending this year, 30% representing imported products, Americans would have to pay an additional $15 tax. In addition to consumers, imported taxes could negatively affect jobs and businesses throughout the entire supply chain from transportation to retail stores. Furthermore, an imported tax would trigger retaliations from U.S. trading partners, which will harm U.S. exports.
Nam Pham is Managing Partner at ndp | analytics.
2015 is shaping up to be a big year for the global economy. The U.S.-led free trade agreements have new life. The U.S. and China reached a monumental agreement on information and communications technology tariffs. And India and the U.S. came to consensus on food stockpiles that helps bring the World Trade Organization’s Trade Facilitation Agreement (TFA) one step closer to reality. The U.S. cannot squander this opportunity.
- On the U.S. FTAs: The Trans-Pacific Partnership (TTIP) and Trans-Atlantic Trade and Investment Partnership (TTIP) have returned to the conversation among policymakers as something the President and Congress can accomplish during the lame-duck session. The success of these agreements hinges on the President and Congress re-enacting the Trade Promotion Authority to allow negotiated trade deals to be voted on in Congress without having them picked apart. And, as we noted in our previous report, there are substantial benefits to TPP countries due to intellectual property-intensive industries that are vital to prosperity, innovation, and competitiveness of all countries in the TPP.
- On U.S./China ITA: The U.S. and China finally agreed to adopt an updated Information Technology Agreement (ITA) that eliminates tariffs on trade for hundreds of information and communications technology (ITC) products. These tariff eliminations, which stood at a range from 8 percent for medical devices to 30 percent for video game consoles, are massively important for the U.S. economy and consumers. The ITA expansion is estimated to increase U.S. exports by $2.8 billion, advance revenues of U.S. companies by $10 billion, and create 60,000 new jobs. Overall, the agreement stands to increase global GDP $190 billion annually.
- On the WTO’s TFA: The U.S. and India reached an agreement over food stockpiles that pulls the Group of 20 major economies closer to consensus on the Bali Agreement. The agreement would be the biggest trade deal in the WTO since its inception. The TFA will remove delays at border crossing and ports by bringing uniform standards at customs and ports. The WTO estimates TFA will stimulate the global economy by $1 trillion.
The opening of global markets beyond the incremental steps taken over the past few years is a great thing for a sputtering global economy. Businesses benefit by having access to many more customers. Consumers gain access to goods and products are lower prices and a greater variety. Washington has a grand opportunity to lead on global trade. It better not spoil it.
When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home.
President Obama’s trip to Asia this week to promote the Trans-Pacific Partnership (TPP) has significant ramifications for the future of the U.S. and global economy. Yet, the TPP negotiations between the United States and Japan leading up to his trip have stalled with little progress in sight. This setback reveals the difficulty of negotiating a free trade treaty between two countries, let alone twelve.
In the U.S., some free trade skeptics are unconvinced of the TPP’s economic merits, particularly the provisions strengthening the enforcement of intellectual property. However, it is clear that the key economic benefits from a TPP deal come from a strong legal framework that protects innovation and IP.
Our empirical analysis shows that two-thirds of the economic gains from concluding a TPP would come from IP-intensive industries. Harmonizing IP protections creates jobs, produces more exports, attracts more direct investments from other countries, and enables the transfer of technology across countries and industries, all of which helps to raise incomes and living standards across all participating countries.
The TPP would unite 12 Pacific Rim countries, which stretch from Canada to Chile and across the globe to Japan, Australia, and east to Vietnam. These dozen nations are home to more than 800 million people and have a combined gross domestic product of more than $27 trillion, or about 40 percent of the world’s economy. According to the U.S. Trade Representative’s office, a TPP agreement could add $223 billion to global income and boost U.S. exports by $124 billion by 2025. We estimate the immediate benefits from TPP will create more than 107,000 new jobs, generate $4.8 billion in wages, produce $47.5 billion in manufacturing sector sales, and add $15.4 billion to GDP in all 12 participating countries.
While free trade agreements have traditionally sought to reduce tariff barriers to trade between countries, these barriers have been mostly eliminated among TPP countries. However, nontariff barriers to trade are still a problem. The TPP focuses on the reduction of these nontariff barriers to trade, particularly weak or inconsistent IP protection, which is the most significant nontariff trade barrier in the 21st century global economy.
When IP rights are protected, companies are more confident in trading with and investing in those countries, which also increases exports and economic growth at home. Therefore, strong legal frameworks for protecting IP rights leads to higher economic growth and standards of living across the globe.
The TPP also creates considerable economic benefits to the U.S. We estimate that IP supports more than 55 million American jobs, creates $5.8 trillion in gross output, pays workers 30.5 percent higher wages, and drives more than two-thirds of U.S. exports to global markets. In a time of persistently low economic growth, a TPP that strengthens IP rights would also considerably bolster the U.S. economy and job market through increased innovation. Innovation is the fundamental source of economic growth, and the benefits of IP have been demonstrated in the U.S., other developed countries, and developing countries.
But IP is only as robust as the laws that protect the copyrights, patents, regulatory data, trademarks, and trade secrets that safeguard a business’ intangibles. The economic incentive to spend billions of dollars and as long as a decade funding costly experimental trials rapidly disappears if the originality and novelty of the product can be freely copied as soon as the innovative product is introduced to the market. Thus, the goal of treaties such as the TPP is to protect these investments in IP, giving innovators the confidence to bring their products and services to market in developing countries.
A TPP agreement that upholds the highest standards of IP protection in each country and more closely harmonizes its legal and regulatory framework creates more efficient markets unencumbered by the uncertainty that ideas will be protected one way in one country and a different way in another.
The stronger the protection of IP rights under the TPP, the greater the value of trade and investment in IP-intensive industries, the engines of economic growth, higher wages and more jobs across all TPP member economies. We cannot invest in our future and grow our economies without them.
Dr. Nam D. Pham is Managing Partner of ndp | analytics, an economic research firm and an adjunct professor at George Washington University in Washington, D.C. This piece first appeared on Ideas Laboratory.
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