Krugman Gives the TPP a “Thumbs Down”

Dave Johnson

Paul Krugman gives a “thumbs down” to the Trans-Pacific Partnership (TPP) today on his New York Times blog “in TPP at the NABE.”

Taking it a bit further, he writes,

…it doesn’t look like a good thing either for the world or for the United States, and you have to wonder why the Obama administration, in particular, would consider devoting any political capital to getting this through.

Krugman then goes after the way many economists reflexively support “free trade” in spite of the obvious damage this ideology has done to the world, writing that economists favor trade deals based on outdated assumptions. One is “comparative advantage.” This is the idea that different geographical regions have certain things they can do that others can’t, like growing bananas. So opening up trade greatly increases the market for their bananas, and the rest of the world gets bananas that they couldn’t otherwise get.

While economists hold to this idea as a reason for open trade today, they are now referring to low wages and lack of environmental protections as the comparative advantage offered by countries like China. In other words, the benefits that We the People receive because we have a democracy – good wages, a clean environment – are a comparative disadvantage in their eyes.

Krugman takes on the old trope that “protectionism” – people in democracies voting to use tariffs to protect those wages and regulations from being undermined by the lower costs that a thugocracy offers – harms the world’s economy. Krugman writes:

One particular misuse of the yay-free-trade sentiment is the persistent effort to make protectionism a cause of economic slumps, and trade liberalization a route to recovery. How many times have you seen the Kindleberger “spiderweb” chart showing declining world trade in the early years of the Great Depression, which is then invoked as showing the evils of protectionism (slide 2)? In fact, it shows no such thing; you can draw a similar chart for the Great Recession (slide 3), when we know that there was no upsurge in protectionism.

Krugman then explains that the trade gains from TPP will be very small, and the reason the big corporations want TPP is actually the provisions that award various monopolies. Big pharmaceutical companies will get high drug prices, Hollywood will get higher revenues, etc.

Finally, he hits a central point of the geopolitical argument for TPP – that it will help the U.S. dominate the world’s economy. Actually, it will help giant corporations that say they are “American-based.” Krugman writes, “But are they really U.S. firms in any meaningful sense? If pharma gets to charge more for drugs in developing countries, do the benefits flow back to U.S. workers? Probably not so much.”

Exactly. Who is the “we” when these companies tell Americans that “we” will benefit from TPP?

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