WEBVTT - Harvard's Lawrence: Without TPP, China Will Set Rules (Audio)

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<v Speaker 1>hundred fourteen, the SMP five hundred index up a point

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<v Speaker 1>the yield one point five percent, Gold down eight fifty,

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<v Speaker 1>of one percent. And crude oil West Texas intermediate of

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<v Speaker 1>a Donna thirty four barrel right now on w t I.

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<v Speaker 1>That is a gain of three point four percent I'm

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<v Speaker 1>Charlie Pellett, and that's a Bloomberg Business Flash. This is

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<v Speaker 1>taking Stock with pin Box and Kathleen Hayes on Bloomberg Radio,

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<v Speaker 1>broadcasting live from Atlantic Wharf in Boston, site of Smith

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<v Speaker 1>and will Lensky's talking about a wharf that makes me

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<v Speaker 1>think of trade and Transpacific Partnership. President Obama saying yesterday

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<v Speaker 1>that he expects the t p P to pass the

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<v Speaker 1>US Congress after the election. To find out more about

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<v Speaker 1>this trade agreement, we have Robert Lawrence. He is Albert L.

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<v Speaker 1>Williams Professor of International Trade and Investment for the Harvard

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<v Speaker 1>Kennedy School, and he joins US now. He's also a

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<v Speaker 1>senior Fellow at the Peterson Institute for International Economics. Robert Lawrence,

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<v Speaker 1>thank you very much for being with us. What's your

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<v Speaker 1>analysis of the TPP as it would affect businesses in

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<v Speaker 1>the United States. Well, I think on balance, it's a

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<v Speaker 1>very positive agreement. It's an agreement between twelve countries. They

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<v Speaker 1>constitute about of the world economy, and it's going to

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<v Speaker 1>achieve low trade barriers among them, almost remove all of

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<v Speaker 1>those not only at the border, but also deal with

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<v Speaker 1>a lot of the rules that govern international trade. So

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<v Speaker 1>it's going to offer a lot of opportunities, especially actually

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<v Speaker 1>for smaller businesses who depend more on e commerce and

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<v Speaker 1>other ways of reaching markets abroad. So when we do

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<v Speaker 1>an analysis of the potential gains of the agreement by

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<v Speaker 1>night By, they amount to something like a half a

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<v Speaker 1>percent of g d P about a hundred and thirty

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<v Speaker 1>billion dollars. So I think on balance it's going to

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<v Speaker 1>be it would be a positive development. Give us an

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<v Speaker 1>example of a rule that will be chain that would

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<v Speaker 1>be benefit beneficial state to the United States, what's been

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<v Speaker 1>a hindrance, even if it's very specific, to give us

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<v Speaker 1>kind of a sense of what this would mean to

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<v Speaker 1>a national business and a national even worker. Well Um,

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<v Speaker 1>one of the areas in which rules are going to

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<v Speaker 1>would be agreed relate to service and where they could

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<v Speaker 1>be located. So an American firm that wants to service

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<v Speaker 1>the entire Asian market might find an economic to have

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<v Speaker 1>its server in only one country and to then UH

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<v Speaker 1>serve countries and have its Internet UH sales occur throughout

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<v Speaker 1>the whole market. Well Um. Today, individual countries can require

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<v Speaker 1>those servers to be located within the country, but as

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<v Speaker 1>a result of the agreement, countries will no longer be

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<v Speaker 1>able to do that except in the financial area, So

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<v Speaker 1>that would be an example. But there are many standards

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<v Speaker 1>which country which firms have to meet in order to

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<v Speaker 1>sell their products in different countries, and this would make

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<v Speaker 1>headway in making regulations and much more transparent and much

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<v Speaker 1>easier to deal with. Can you address the issue of

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<v Speaker 1>US workers will they be displaced if the t p

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<v Speaker 1>P has passed. Some workers would be displaced as a

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<v Speaker 1>result of TPP. Obviously, if we're opening our market in

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<v Speaker 1>return for foreign countries opening, there's there is going to

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<v Speaker 1>be some dislocation. So we've come up with estimates of

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<v Speaker 1>what the magnitudes of that dislocation is likely to be.

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<v Speaker 1>And for individual workers this can be very painful. But

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<v Speaker 1>what we find is that the TPP is going to

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<v Speaker 1>be phased in over a period of about ten years,

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<v Speaker 1>and even during the period when it's being phased in,

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<v Speaker 1>the aggregate benefits to the economy are about twelve times

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<v Speaker 1>costs to the workers who are dislocated, and then once

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<v Speaker 1>the workers have adjusted, the economy is left with the benefits.

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<v Speaker 1>So over the medium term we're left with something like

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<v Speaker 1>a hundred and thirty billion dollars worth of net benefits

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<v Speaker 1>per year. However, you also acknowledge, and it seems to

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<v Speaker 1>me are also seeming to urge that we don't just

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<v Speaker 1>ignore and say, oh, the net benefits gonna be great

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<v Speaker 1>in ten years. We acknowledge that if if I'm them

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<v Speaker 1>on losing my job, it's not worth it at all,

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<v Speaker 1>that we need trade adjustment assistance, that we need wage insurance.

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<v Speaker 1>Explain to us how that would work. Are the provisions

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<v Speaker 1>for that right now, say in the proposals person Obama's backing,

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<v Speaker 1>So there are. We do have a program which is

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<v Speaker 1>called Trade Adjustment Assistance, although in my view it's much

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<v Speaker 1>too small for individual workers who lose their jobs trade

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<v Speaker 1>or for any reason. That's a very painful experience. Uh.

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<v Speaker 1>The estimates of that they could lose is something like

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<v Speaker 1>one point four times their annual income over their whole lifetime.

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<v Speaker 1>So we, I believe need to improve our programs. The

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<v Speaker 1>existing programs do UH provide additional assistance in addition to

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<v Speaker 1>unemployment insurance to workers who are dislocated, but I think

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<v Speaker 1>we should be expanding those um not only for workers

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<v Speaker 1>who lose their job because of trade, but workers who

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<v Speaker 1>lose their job for other reasons beyond their own control. UH.

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<v Speaker 1>Some workers, many workers who lose their jobs can find

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<v Speaker 1>alternative work each sometimes even at higher pay, But for

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<v Speaker 1>some they're forced to take lower wages. And one component

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<v Speaker 1>that I believe ought to be expanded is what I

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<v Speaker 1>call wage insurance, and that would mean that if you

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<v Speaker 1>lose your job and you take a new job at

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<v Speaker 1>a lower wage for some period of time, the government

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<v Speaker 1>would compensate you. And we find that if you take

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<v Speaker 1>the aggregate benefits from TPP, you can easily afford to

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<v Speaker 1>have a much more generous program for those workers who

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<v Speaker 1>are dislocated and who lose. If the TPP does not

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<v Speaker 1>pass the US Congress, will the other countries that are

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<v Speaker 1>part of the t p P. Will they reap the

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<v Speaker 1>benefits well? UH, specifically, probably not through keeping the same TPP,

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<v Speaker 1>because a requirement for TPP to go into effect is

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<v Speaker 1>in fact that countries which account for eighty five pc

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<v Speaker 1>of the of the income UH sign it. But it

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<v Speaker 1>is very likely that if the United States rejects the

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<v Speaker 1>t p P or does not go along, that the

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<v Speaker 1>Asian countries who are who have concluded the t p

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<v Speaker 1>P will liberalize among themselves. It's also the case that

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<v Speaker 1>China is leading another big trade negotiation in which several

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<v Speaker 1>of the TPP partners are participating. So we would be withdrawing,

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<v Speaker 1>but China will be leading. And in a sense, if

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<v Speaker 1>we don't contribute to setting the rules of the trading system,

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<v Speaker 1>what we're going to land up with in Asia is

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<v Speaker 1>a trading system in which China sets the rules. You're

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<v Speaker 1>the author of many books, one of them Crimes and

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<v Speaker 1>Punishments Retaliation into the w t O. Co author of

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<v Speaker 1>several books, but one of my favorite titles is globe

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<v Speaker 1>a Phobia. Confronting fears about open trade. Is global globe

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<v Speaker 1>phobia more rampant now, do you? I mean? Certainly Donald

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<v Speaker 1>Trump's cry that that free trade is not fair trade

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<v Speaker 1>is resonating with a lot of voters. Absolutely so. I think, um,

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<v Speaker 1>we have had poor economic performance in the US, especially

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<v Speaker 1>when it comes to raising the median incomes of the

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<v Speaker 1>average American, and what Donald Trump has done is to

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<v Speaker 1>seize on and several other candidates have seasoned on trade

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<v Speaker 1>as the big source of all of these problems, both

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<v Speaker 1>the slow wage growth and the erosion of manufacturing employment.

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<v Speaker 1>If you look carefully what you find is that trade

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<v Speaker 1>has been a contributor, but it's a relatively small contributor. Moreover,

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<v Speaker 1>if you were to interfere with trade, as Donald Trump

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<v Speaker 1>is advocating, if you start to put barriers at the border,

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<v Speaker 1>you're actually going to cause more job losts and more

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<v Speaker 1>just location. You know, about two thirds of all of

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<v Speaker 1>the products that we import into the United States are

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<v Speaker 1>not finished products. There are parts, they're intermediate products. If

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<v Speaker 1>you think of your Apple telephone, at least of your iPhone,

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<v Speaker 1>you'll realize that it has parts from all over the world.

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<v Speaker 1>So if you come along and you put tariffs on

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<v Speaker 1>those imports, what you're gonna do is prevent the man

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<v Speaker 1>of factoring that's currently taking place in the United States

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<v Speaker 1>from actually a curry. So that would be extremely disruptive.

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<v Speaker 1>So I think, um, not only is trade being villainized

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<v Speaker 1>as the source of all our economic problems. It has

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<v Speaker 1>contributed some, but the estimates off instance, when it comes

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<v Speaker 1>to manufacturing jobs, it's probably accounted for one sixth of

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<v Speaker 1>the loss of the manufacturing jobs. But interfering with trade

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<v Speaker 1>and erecting new trade barriers certainly isn't part of the

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<v Speaker 1>solution to our problems. Robert Lawrence, thank you so very much.

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<v Speaker 1>You're most welcome. You just I think enlightened everyone listening

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<v Speaker 1>to the the reality and an intelligent analysis of trade,

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<v Speaker 1>the pros and the cons. The pros outweighing the cons.

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<v Speaker 1>But there's the ways he said to offset job loss,

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<v Speaker 1>wage loss. We'll look forward to having you back on

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<v Speaker 1>the show. Is this debate over trade continues? Robert Lawren

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<v Speaker 1>is the Albert O. Williams Professor of International Trade Investment

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<v Speaker 1>at Harvard's Kennedy School and Senior Fellow at the Peterson

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<v Speaker 1>Institute for International Economics, and Kathleen Hayes, along with Pim Fox,

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<v Speaker 1>this is remembered