With a stroke of the pen, President Trump has eliminated one of the most significant poverty-reduction measures that would have been enacted this decade.
Negotiations for the Trans-Pacific Partnership took half a decade and covered 40 percent of the world’s economy. While the agreement was already on death row thanks to a lack of support from Congress, President Trump’s executive order withdrawing US involvement sends a clarion signal about his administration’s outlook on trade.
Supported by Presidents Obama and George W. Bush, the TPP would have been overwhelmingly positive for both the United States and the rest of the world.
Every nation that took part in the TPP, including the United States, would have received a boost to their GDP of about 0.42 percent, according to research conducted for Copenhagen Consensus. The deal would have boosted global GDP by 0.22 percent.
The research showed that benefits would have been at least 800 times higher than the costs. The benefits for developing countries would have been even more exceptional: at least 1,800 times higher than the costs, and possibly up to 3,300 times.
The backlash against free trade is expressed most strongly by Trump in the United States but is shared by voters and politicians around the world. Of course, there are genuine costs to free trade deals. Some people lose their jobs, and some of those struggle to find other work. One recent study suggests that free trade increases income inequality, and the cost of redistribution could erode more than 20 percent of the gains.
What this tells us is that we should be willing to spend in the region of 20 percent of trade benefits on helping the losers from trade deals, through job training and transitional social welfare, to ameliorate the risks. But it also shows that 80 percent of the benefits stand. Isolationist policies effectively throw out the baby with the bathwater.
Of course, corporations that produce less effective products stand to gain from trade restrictions. Likewise do the employees of these companies. But the truth is that almost everyone stands to lose when we don’t produce where it is most effective.
Compared to a world with no trade, middle-class Americans gain more than a quarter of their purchasing power from foreign trade.
In other words, because of trade, the average middle-class American can buy 29 percent more for each dollar than if there were no trade. The effect is even bigger — 62 percent — for the poorest tenth of consumers.
Greater economic globalization lowers child mortality and extends life expectancy, due to increased incomes and better information. Free trade is good for the environment: Higher incomes drive better technology and more stringent regulations, which in turn reduce pollution. In total, research has shown that a 10 percent increase in income results in 10 percent less pollution. Free trade has also been shown to create more jobs for women, less employment discrimination, and better human rights conditions.
And despite the rhetoric from politicians, trade actually makes exporters stronger, more efficient and productive. These benefits are shared among workers: The Council of Economic Advisors found that, on average, US export-intensive industries pay workers up to 18 percent more than nonexporting firms.
The biggest fault with the TPP was simply that it did not go far enough. An even more powerful way to help the world would be a truly global trade deal, incorporating the entire planet.
This would cut the number of people in poverty by an astonishing 145 million in 15 years, according to research commissioned by the Copenhagen Consensus Center. It would make the world $11 trillion richer each year by 2030. The increased wealth would be equivalent to an extra $1,000 for every single person every year in the developing world by 2030. There is no other policy on the planet that could achieve anything like that.
The trade agreement was the best hope for world poverty reduction this decade.
Without the United States, there can be no truly global trade deals. That is a tragedy for the planet.Bjorn Lomborg is president and founder of the Copenhagen Consensus Center and a visiting professor at Copenhagen Business School.