World Class Faculty & Research / June 9, 2015

‘Fast Track’ Would Hurt U.S. Workers, Smith Economist Says

SMITH BRAIN TRUST -- The Senate-adopted bill giving President Obama “fast track” authority to conclude a free trade agreement with Asian nations remains in the balance despite earlier projections of House passage this week, Politico reports.  Economist Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business, says the measure limiting Congress to up-or-down votes to approve trade packages, such as the Trans Pacific Partnership, “would lower wages for ordinary Americans and increase income inequality.” (The TPP would include South Korea, Japan, Malaysia, Chile and eight other nations – and potentially China and India.)

Implications from China’s 2001 World Trade Organization entry, Morici writes in an op-ed at The Hill, signals the pact would fail the two-pronged litmus test of effective free trade: 1. job creation for displaced workers in a robust and fast-growing economy, and exportation of goods and services requiring highly skilled workers and large research and development investments.

With China’s WTO entry, “American companies like GM, GE and Microsoft still must manufacture, form joint ventures with local companies and undertake product development in (China) to sell there and obtain protection for their patents,” Morici writes. “Much American intellectual property still gets ripped off, but the Obama Administration has been tepid in efforts to assert U.S. rights, and the $350 billion bilateral trade deficit costs American workers at least 3 million jobs and greatly suppresses wages.”

Currency Manipulation Conundrum

Asian nations undervaluing their currency for competitive advantage further factors in, Morici says. “The scope of such currency manipulation could be expected to easily wipe out the benefits American businesses may expect from the TPP by eliminating foreign tariffs and reducing other regulatory barriers to trade.”

However, attaching a currency manipulation-control measure to the trade bill could prompt other countries to leave the negotiating table, UMD public policy professor Phillip Swagel recently told the New York Times. Swagel, an academic fellow in the Smith School’s Center for Financial Policy, says countries such as China and Malaysia intervene to distort the value of their currencies. That, in turn, has hurt American workers. But a deal to promote trade, he says, is not the place to push such a delicate economic issue.

“Each country needs to have the ability to run its monetary policy in the way it sees fit," he says. "It just seems like a strange thing to use a trade agreement to tell other countries how to run their monetary policies.”

Broadly, Morici says U.S. multinationals would profit from the TPP. “They will be able to more easily move production to Asia to take advantage of labor and other resources made cheaper by manipulated currencies,” Morici says. “Rich shareholders would profit and smile but ordinary working Americans would face more unfairly advantaged foreign competitors, unemployment and more downward pressure on wages. The richest 10 percent would get richer, working Americans would become poorer.”

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The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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