Harvard's Lawrence: Without TPP, China Will Set Rules (Audio)

It had been larger just a moment ago. Up now by just about half a point at eighteen thousand, three hundred fourteen, the SMP five hundred index up a point one fifty eight, a gain there of less than point one percent. Nastack is up nine points, a gain of two tents of one percent, the tenure up four thirty seconds, the yield one point five percent, Gold down eight fifty, the ounce thirteen fifty nine, a drop of six tenths

of one percent. And crude oil West Texas intermediate of a Donna thirty four barrel right now on w t I. That is a gain of three point four percent I'm Charlie Pellett, and that's a Bloomberg Business Flash. This is taking Stock with pin Box and Kathleen Hayes on Bloomberg Radio, broadcasting live from Atlantic Wharf in Boston, site of Smith and will Lensky's talking about a wharf that makes me

think of trade and Transpacific Partnership. President Obama saying yesterday that he expects the t p P to pass the US Congress after the election. To find out more about this trade agreement, we have Robert Lawrence. He is Albert L. Williams Professor of International Trade and Investment for the Harvard Kennedy School, and he joins US now. He's also a senior Fellow at the Peterson Institute for International Economics. Robert Lawrence,

thank you very much for being with us. What's your analysis of the TPP as it would affect businesses in the United States. Well, I think on balance, it's a very positive agreement. It's an agreement between twelve countries. They constitute about of the world economy, and it's going to achieve low trade barriers among them, almost remove all of those not only at the border, but also deal with

a lot of the rules that govern international trade. So it's going to offer a lot of opportunities, especially actually for smaller businesses who depend more on e commerce and other ways of reaching markets abroad. So when we do an analysis of the potential gains of the agreement by night By, they amount to something like a half a percent of g d P about a hundred and thirty billion dollars. So I think on balance it's going to

be it would be a positive development. Give us an example of a rule that will be chain that would be benefit beneficial state to the United States, what's been a hindrance, even if it's very specific, to give us kind of a sense of what this would mean to a national business and a national even worker. Well Um, one of the areas in which rules are going to would be agreed relate to service and where they could

be located. So an American firm that wants to service the entire Asian market might find an economic to have its server in only one country and to then UH serve countries and have its Internet UH sales occur throughout the whole market. Well Um. Today, individual countries can require those servers to be located within the country, but as a result of the agreement, countries will no longer be able to do that except in the financial area, So

that would be an example. But there are many standards which country which firms have to meet in order to sell their products in different countries, and this would make headway in making regulations and much more transparent and much easier to deal with. Can you address the issue of US workers will they be displaced if the t p P has passed. Some workers would be displaced as a

result of TPP. Obviously, if we're opening our market in return for foreign countries opening, there's there is going to be some dislocation. So we've come up with estimates of what the magnitudes of that dislocation is likely to be.

And for individual workers this can be very painful. But what we find is that the TPP is going to be phased in over a period of about ten years, and even during the period when it's being phased in, the aggregate benefits to the economy are about twelve times costs to the workers who are dislocated, and then once the workers have adjusted, the economy is left with the benefits. So over the medium term we're left with something like a hundred and thirty billion dollars worth of net benefits

per year. However, you also acknowledge, and it seems to me are also seeming to urge that we don't just ignore and say, oh, the net benefits gonna be great in ten years. We acknowledge that if if I'm them on losing my job, it's not worth it at all, that we need trade adjustment assistance, that we need wage insurance. Explain to us how that would work. Are the provisions for that right now, say in the proposals person Obama's backing,

So there are. We do have a program which is called Trade Adjustment Assistance, although in my view it's much too small for individual workers who lose their jobs trade or for any reason. That's a very painful experience. Uh. The estimates of that they could lose is something like one point four times their annual income over their whole lifetime.

So we, I believe need to improve our programs. The existing programs do UH provide additional assistance in addition to unemployment insurance to workers who are dislocated, but I think we should be expanding those um not only for workers who lose their job because of trade, but workers who lose their job for other reasons beyond their own control. UH. Some workers, many workers who lose their jobs can find alternative work each sometimes even at higher pay, But for

some they're forced to take lower wages. And one component that I believe ought to be expanded is what I call wage insurance, and that would mean that if you lose your job and you take a new job at a lower wage for some period of time, the government would compensate you. And we find that if you take the aggregate benefits from TPP, you can easily afford to have a much more generous program for those workers who

are dislocated and who lose. If the TPP does not pass the US Congress, will the other countries that are part of the t p P. Will they reap the benefits well? UH, specifically, probably not through keeping the same TPP, because a requirement for TPP to go into effect is in fact that countries which account for eighty five pc

of the of the income UH sign it. But it is very likely that if the United States rejects the t p P or does not go along, that the Asian countries who are who have concluded the t p P will liberalize among themselves. It's also the case that China is leading another big trade negotiation in which several of the TPP partners are participating. So we would be withdrawing,

but China will be leading. And in a sense, if we don't contribute to setting the rules of the trading system, what we're going to land up with in Asia is a trading system in which China sets the rules. You're the author of many books, one of them Crimes and Punishments Retaliation into the w t O. Co author of several books, but one of my favorite titles is globe a Phobia. Confronting fears about open trade. Is global globe

phobia more rampant now, do you? I mean? Certainly Donald Trump's cry that that free trade is not fair trade

is resonating with a lot of voters. Absolutely so. I think, um, we have had poor economic performance in the US, especially when it comes to raising the median incomes of the average American, and what Donald Trump has done is to seize on and several other candidates have seasoned on trade as the big source of all of these problems, both the slow wage growth and the erosion of manufacturing employment. If you look carefully what you find is that trade

has been a contributor, but it's a relatively small contributor. Moreover, if you were to interfere with trade, as Donald Trump is advocating, if you start to put barriers at the border, you're actually going to cause more job losts and more just location. You know, about two thirds of all of the products that we import into the United States are

not finished products. There are parts, they're intermediate products. If you think of your Apple telephone, at least of your iPhone, you'll realize that it has parts from all over the world. So if you come along and you put tariffs on those imports, what you're gonna do is prevent the man of factoring that's currently taking place in the United States from actually a curry. So that would be extremely disruptive. So I think, um, not only is trade being villainized

as the source of all our economic problems. It has contributed some, but the estimates off instance, when it comes to manufacturing jobs, it's probably accounted for one sixth of the loss of the manufacturing jobs. But interfering with trade and erecting new trade barriers certainly isn't part of the solution to our problems. Robert Lawrence, thank you so very much. You're most welcome. You just I think enlightened everyone listening to the the reality and an intelligent analysis of trade,

the pros and the cons. The pros outweighing the cons. But there's the ways he said to offset job loss, wage loss. We'll look forward to having you back on the show. Is this debate over trade continues? Robert Lawren is the Albert O. Williams Professor of International Trade Investment at Harvard's Kennedy School and Senior Fellow at the Peterson Institute for International Economics, and Kathleen Hayes, along with Pim Fox, this is remembered