Implications of pulling out of TPP

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Jose Mendez, Asst. Chair WP Carey Dept. of Economic discusses the implications of President Trumps decision to remove the U.S. from the Trans-Pacific Partnership.

TED SIMONS: COMING UP NEXT ON "ARIZONA HORIZON" PRESIDENT TRUMP REMOVES THE U.S. FROM THE TRANSPACIFIC PARTNERSHIP. WHAT DOES THIS MEAN FOR ARIZONA TRADE? AND WE GET THE LATEST SCIENCE NEWS FROM OUR FAVORITE PHYSICIST. THOSE STORIES NEXT ON "ARIZONA HORIZON."

Announcer: "ARIZONA HORIZON" IS MADE POSSIBLE BY CONTRIBUTIONS FROM THE FRIENDS OF ARIZONA PBS, MEMBERS OF YOUR PBS STATION. THANK YOU.

TED SIMONS: GOOD EVENING, AND WELCOME TO "ARIZONA HORIZON." I'M TED SIMONS. PRESIDENT TRUMP YESTERDAY SIGNED AN EXECUTIVE ORDER WITHDRAWING THE UNITED STATES FROM THE TRANSPACIFIC PARTNERSHIP OR TPP, A TRADE DEAL DESIGNED TO ECONOMICALLY TIE THE U.S. TO PACIFIC RIM COUNTRIES. HERE TO DISCUSS THE IMPACT OF THE MOVE, JOSE MENDEZ, ASSISTANT CHAIR AT ASU'S W.P CAREY SCHOOL OF BUSINESS ECONOMICS DEPARTMENT. GOOD TO HAVE YOU BACK HERE.

MENDEZ: THANK YOU FOR ASKING ME BACK.

TED SIMONS: NOW, HE FORMALLY ABANDONS THE TPP. WHAT ARE YOUR INITIAL THOUGHTS?

MENDEZ: WELL, MY THOUGHTS IS IT IS A MISTAKE. IN A COUPLE OF SENSES. NOT JUST IN TERMS OF THE ECONOMICS. WE ARE LOSING AN OPPORTUNITY TO BOOST U.S. GDP, TO BOOST OUR TRADE. BUT MORE IMPORTANTLY IN TERMS OF THE STRATEGIC IMPLICATIONS, WE'RE LIMITING OUR INFLUENCE IN ASIA AT EXACTLY THE WRONG TIME. YOU KNOW, MOST PEOPLE ARE ARE -- MOST ANALYSTS AGREE THAT THE CENTER OF, SAY, ECONOMIC ACTIVITY OF INFLUENCE IS MOVING TOWARDS ASIA. AND HERE WE ARE STEPPING BACK FROM THAT. AND IT'S OPENING UP THE DOOR TO GREATER INFLUENCE FOR CHINA.

TED SIMONS: I WAS GOING TO SAY, CRITICS ARE SAYING THAT THIS MOVE LEAVING THE TPP IS A BIG WIN FOR CHINA. ARE THEY RIGHT?

MENDEZ: YES, ABSOLUTELY. IT -- ON TWO THINGS. OF COURSE IT'S CREATING A VACUUM THAT THEY'RE GOING TO FILL, BUT THE OTHER PROBLEM IS THAT HERE THESE COUNTRIES, MAJOR COUNTRIES, JAPAN IN PARTICULAR, MALAYSIA, THESE COUNTRIES HAVE SPENT EIGHT YEARS AT THE NEGOTIATING TABLE WITH THE UNITED STATES. AND WE'RE SHOWING THEM THAT WE'RE -- THAT THEY CAN SEND THEIR NEGOTIATORS TO US, TRY TO HAMMER THESE AGREEMENTS, BUT AT THE END OF THE DAY, WE DON'T COME THROUGH.

SIMONS: SO WE'RE BASICALLY SEEN AS UNRELIABLE TO THESE NATIONS?

MENDEZ: IN PART, YEAH.

SIMONS: UNRELIABLE ON THIS, MAYBE THEN UNRELIABLE ON OTHER FACTORS AS WELL.

MENDEZ: EXACTLY.

SIMONS: LET'S DEFINE TERMS HERE, WHAT EXACTLY IS IT?

MENDEZ: WELL, THE TPP IS A FREE TRADE AGREEMENT, A HISTORIC FREE TRADE AGREEMENT, A 21st CENTURY FREE TRADE AGREEMENT BETWEEN THE UNITED STATES AND 11 OTHER PACIFIC RIM COUNTRIES. THIS FREE TRADE AGREEMENT IRONICALLY IS A STATE OF THE ART AGREEMENT THAT WAS PUT FORTH PRIMARILY BY THE UNITED STATES SINCE NAFTA -- SINCE NAFTA WHICH OF COURSE WAS SIGNED IN 1994, WE'VE HAD 23 YEARS OF EXPERIENCE AND WE'VE SIGNED ABOUT 23 TRADE AGREEMENTS. AND EACH ONE HAS, YOU KNOW -- THE FREE TRADE AGREEMENTS -- NAFTA WAS NOT A STATE OF THE ART -- EXCUSE ME. EACH TIME WE'VE LEARNED, OUR NEGOTIATORS HAVE LEARNED AND IMPROVED ON AGREEMENTS. SO THE IRONY FOR ME IS THAT MEXICO AND CANADA WITH PART OF THE TPP. THE TPP IS STATE OF THE ART IN TERMS OF LABOR STANDARDS, ENVIRONMENTAL STANDARDS, AND SO -- PROTECTION OF INTELLECTUAL PROPERTY. AND SO I'M NOT SURE WHAT -- WHAT PRESIDENT TRUMP WOULD GO TO MEXICO WHEN THEY APPROACH MEXICO AND WHEN HE APPROACHES CANADA, WHAT IS HE GOING TO NEGOTIATE ON? IS HE IN EFFECT GOING TO ASK THEM TO COME THROUGH AND TO AGREE ON THE TERMS THAT WE WOULD HAVE GOTTEN HAD WE PASSED --

TED SIMONS: ON THE TPP.

MENDEZ: -- THE TPP?

TED SIMONS: PRESIDENT TRUMP SAYS THE MOVE PROTECTS U.S. WORKERS AGAINST LOW WAGE COUNTRIES AND HE SAID THIS IS THE END OF MULTI-NATIONAL TRADE AGREEMENTS. FIRST OF ALL, IS HE RIGHT, IT DOES PROTECT WORKERS AGAINST THESE LOW WAGE COUNTRIES?

MENDEZ: NO. THE HARMFUL EFFECTS IS THAT IT'S GOING TO -- WELL, THESE SORT OF AGREEMENTS ARE MADE TO EXPAND U.S. EXPORTS. AND THIS PARTICULAR AGREEMENT, WE'RE REALLY RELATIVELY FREE. SO WE'RE NOT -- THERE'S NOT GOING TO BE MUCH EXPANSION IN TERMS OF THEIR PRODUCTS SELLING IN THE U.S. MARKET. WELL, IN THIS PARTICULAR AGREEMENT IS THAT WE WERE OUT THE OPEN MARKET, JAPAN'S MARKET FOR INSTANCE IS CLOSED TO AGRICULTURAL PRODUCTS, DAIRY, RICE, BEEF. AND OUR FARMERS IN THE MIDWEST WERE JUST EXCITED THAT WE WERE GOING TO GET ACCESS TO THAT MARKET. THE AUTOMOBILE MARKET IN VIETNAM HAS 70% TARIFFS. SO WE WERE ALSO GOING TO GET ACCESS TO VIETNAM, WE WERE GOING TO GET ACCESS TO THE JAPANESE MARKET. SO OUR WORKERS WOULD HAVE BENEFITED FROM -- FROM THE TPP. BUT I DON'T THINK THOSE ARE THE BIG BENEFITS FOR -- OF THE TPP. THE LARGER BENEFITS OF THE TPP IS THAT WE WERE GOING TO SET THE RULES, SAY, OF ENGAGEMENT, THE RULES OF TRADE. WE WERE GOING TO CREATE THE FRAMEWORK UNDER WHICH ASIA WOULD EXPAND AND TRADE WOULD EXPAND AS A WHOLE. IN THIS AGE WHEN THE UNITED STATES IS BEHAVING AND FEELS LIKE IT'S A DIMINISHED GIANT THAT WE ARE NO LONGER IN A BIPOLAR WORLD WHERE YOU HAVE TWO COUNTRIES THAT DOMINATE POLITICS OR THE ECONOMIES, WE'RE IN A WORLD IN WHICH WHERE ONE -- WE'RE A GREAT COUNTRY AND A POWERFUL COUNTRY IF YOU MEASURE BY GROSS DOMESTIC PRODUCT, BUT THERE ARE OTHER COMPETING BLOCS. AND IN THAT WORLD, WE'RE GOING TO INEVITABLY HAVE TRADE FRICTIONS AND IT WOULD BE NICE TO HAVE THE RULES OF ENGAGEMENT ALREADY LAID OUT. BECAUSE -- BECAUSE THE RULES OF ENGAGEMENT, NOT ONLY PROVIDE PREDICTABILITY FOR BUSINESSES ON, YOU KNOW, YOU SEND $5 MILLION WORTH OF PRODUCT INTO SOMEONE'S MARKET AND YOU WANT TO KNOW THAT THE CUSTOMS OFFICIALS, HOW ARE THEY GOING TO TREAT IT, WHO DO YOU CONTACT IF THERE'S PROBLEMS. SO ALL OF THAT WE'RE IN A SENSE FORE SAKING.

TED SIMONS: REAL QUICKLY, I KNOW PRESIDENT TRUMP IS DOING THIS TO PROTECT THE MANUFACTURING SECTOR. WE GOT A COUPLE OF GRAPHICS I WANT YOU TO COMMENT ON. SECULAR DECLINE, LONG-TERM DECLINE AND MANUFACTURING. THIS SHOWS, AS FAR AS EMPLOYMENT, MANUFACTURING IS GOING DOWN.

MENDEZ: I WANT TO PROVIDE A LITTLE BIT OF BACKGROUND. MOST OF THE TRUMP POLICIES ARE PREDICATED ON THE DECLINE OF MANUFACTURING. NOW -- AND THAT THE DECLINE IN MANUFACTURING IS DUE TO NAFTA. NAFTA. 1994. BUT WHAT THIS GRAPH SHOWS YOU IS THAT MANUFACTURING EMPLOYMENT AS A PERCENT OF TOTAL EMPLOYMENT IN THE U.S. ECONOMY HAS BEEN ON A STEADY DECLINE SINCE 1946. THAT IS, MANUFACTURING EMPLOYMENT --

TED SIMONS: RIGHT.

MENDEZ: -- HAS BECOME LESS IMPORTANT IN THE U.S. ECONOMY SINCE 1946. AND THE TREND IS STEADY.

TED SIMONS: AND THE TREND --

MENDEZ: YOU DON'T SEE ANY PARTICULAR BLIMPS…

SIMONS: -- BEFORE AND AFTER NAFTA. OKAY. LET'S DO ANOTHER GRAPH HERE. THIS IS THE COMMON PATTERN AMONG RICH NATIONS. AND IT SHOWS THAT AMONG THESE RICH NATIONS, EVERYONE'S KIND OF IN THE SAME BOAT.

MENDEZ: I WANTED TO SHOW YOU THE GRAPH ON THE LEFT. NOT ONLY HAVE THE RICH NATIONS EXPERIENCED THIS SORT OF SECULAR DECLINE IN MANUFACTURING EMPLOYMENT AS A SHARE OF THEIR TOTAL EMPLOYMENT, BUT GERMANY IS INCLUDED IN IT, NETHERLANDS IS INCLUDED THERE. THOSE ARE COUNTRIES THAT RUN TRADE SURPLUSES. SO YOU CAN'T TIE THIS SECULAR DECLINE IN MANUFACTURING EMPLOYMENT TO A TRADE DEFICIT.

SIMONS: VERY QUICKLY NOW, THE LAST GRAPH SHOWS, AGAIN, EMPLOYMENT DOWN AS FAR AS MANUFACTURING SECTOR, BUT LOOK AT PRODUCTIVITY.

MENDEZ: SO THIS IS A GRAPH -- IT BEGINS WITH THE DATA POINTS IN 1980. THE IMPACT OF CHINA WAS SIGNIFICANT. YOU CAN SEE WHEN CHINA ENTERED AS A RESULT OF ENTER IN 2000 THAT THERE IS A BUMP DOWNWARDS IN ABSOLUTE EMPLOYMENT IN MANUFACTURING SECTOR. AND OF COURSE THE RECESSION HAD A DRAMATIC IMPACT ON JOB LOSS. BUT LOOK AT THE GRAPH AT THE TOP. THAT IS THE VALUE -- VALUE ADDED IN MANUFACTURING OR THE VALUE OF PRODUCTION. NOTICE THAT THE NUMBER OF WORKERS IS FALLING, BUT WE'RE NOW PRODUCING TWICE AS MUCH IN TERMS OF MANUFACTURING OUTPUT THAN WE WERE IN 1980. THAT TELLS YOU THAT IT'S NOT TRADE THAT'S CONTRIBUTING TO THE LOSS OF JOBS. IT'S TECHNOLOGICAL PROGRESS. IT'S THE AUTOMATION THAT'S OCCURRING IN MANUFACTURING.

TED SIMONS: OKAY. AND WE GOT TO STOP IT RIGHT THERE. VERY INTERESTING STUFF. WE'LL SEE IF WE HAVE THE SAME DISCUSSION ONCE NAFTA RECONSIDERATIONS COME AROUND. IT'S GOOD TO HAVE YOU HERE.

MENDEZ: THANK YOU FOR HAVING ME. THANK YOU.

TED SIMONS: AND COMING UP, GET THE LATEST SCIENCE NEWS ON THE MYSTERIES OF THE UNIVERSE, THE MYSTERIES OF OUR GENETICS. IT'S SCIENCE MATTERS WITH LAWRENCE KRAUSS NEXT.

Jose Mendez: Asst. Chair WP Carey Dept. of Economics

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