The U.S. Needs To Rejoin The TPP To Meet The China Challenge

In the wake of the unfolding events in Afghanistan and doubts in Asia about the durability of American commitments, the United States should rejoin the Trans-Pacific Partnership.

Trade allows nations to specialize in what they do best. Value-added per employment is about 11% greater in U.S. export industries than import-competing activities; consequently, specialization adds about $280 billion annually to gross domestic product.

U.S. exporters spend more on research & development and creative intellectual property than other businesses. Wider global markets permit Apple (AAPL), Intel (INTC), Disney (DIS) and Netflix (NFLX) to invest more in new products and more fundamental research.  

Exports allow larger R&D budgets and fuel further, dynamic gains from trade, whose cumulative effects are likely much larger than the static gains noted above.

macro photography of black circuit board
Image Source: Unsplash

Complexity of global markets

Disruptions imposed by COVID illustrate the complexity of global supply chains. Best-in-class methods and dominant market shares for the 300 or so components, processes, tools and chemicals in the semiconductor industry are broadly distributed across the United States, China, Japan, Taiwan, Korea, Australia, India and several other nations.

International market access is required for any one player to thrive. If China, for example, enjoyed substantially better access than the United States, because its competitors faced lower tariffs or were positioned to define global product standards, American businesses and workers would lose out.

Textbook models of free trade assume balanced international commerce but in normal times, the United States runs about a $700 billion deficit on trade in goods and services.

This is enabled by the dollar’s status as the reserve currency.  

Central banks around the world hold U.S. dollars and bonds to back up their currencies. The dollar is the currency of choice for international commerce and many international investors. As the demand for liquidity and financial assets expand, the United States can print dollars to pay for billions in imports without providing exports in return.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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