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As mentioned in the readings for tomorrow’s lesson, the other 11 signatories to the Trans Pacific Partnership (TPP) have moved forward on the deal, even without US participation. The Trump Administration, of course, withdrew the United States only three days after taking office in 2017. The new trade deal is known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The above article is about how the agreement will slash tariffs among the 11 nations, making the goods of non-CPTPP members, such as the US, pricier and less competitive in those markets. The central argument is that American beef and wheat exports, in particular, are expected to suffer. Their evidence is that given Japan is the top market for US beef, Australia’s products will now assume that spot because foreign beef tariffs in Japan will be cut by 27.5 percent for Australian producers, as both countries as signatories to the CPTPP. Likewise, American wheat will face a $14 per metric ton resale price disadvantage to Australia and Canada. These two industries point to the fact that the US should not have withdrawn from the deal, as a country’s real income would have increased and been better off as a result.
This article is a case in point in one of the central themes in this block: that all trade deals create “winners” and “losers.” President Trump in his decision to withdraw the US from the TPP was more concerned with the losses of the deal, as opposed to the substantial merits. He repeatedly argued that the deal would have damaged US manufacturing, added to the trade deficit and sent American jobs overseas. He clearly does not account for the comparative advantage aspect of free trade—that is, the fact that each country involved in a free trade deal gains by exporting the good in which it has a comparative advantage and by importing the good in which it has a comparative disadvantage. This, in turn, leads to specialization and an increased returns to scale from larger markets. The US, with its abundance in land and labor, has a comparative advantage in the wheat and beef industries. In other words, as export-oriented sectors, they both gain from trade. Imported-oriented sectors, on the other hand, are expected to rely intensively on society’s scare factor and therefore lose from trade. The concept of comparative advantage helps illustrates just how misguided President Trump’s decision to withdraw was.