The Transatlantic Trade and Investment Partnership (TTIP),
Cutting wages – bad as that is – does not necessarily translate into the creation of new jobs, debt-crisis countries in the EU periphery have shown. But then, who would win in the TTIP?
By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.
In a 1994 interview with Charlie Rose, the British billionaire financier James Goldsmith delivered a stark, eerily prescient warning of the state the world would be in today if it succumbed to the freer borders and more centralized, corporate-owned governance envisaged by trade regimes such as NAFTA and GATT (the predecessor to the World Trade Organization).
Goldsmith was spot on about just about everything, from the threats posed by derivatives – then in their infancy – to the risks of industrializing agriculture throughout the developing world [You can watch the full interview here]. Yet his warnings went unheeded, as laments the U.S. economist and former Assistant Treasury Secretary Paul Craig Roberts:
Sir James called it correct, as did Roger Milliken. They predicted that the working and middle classes in the US and Europe would be ruined by the greed of Wall Street and corporations, who would boost corporate earnings by replacing their domestic work forces with foreign labor, which could be paid a fraction of labor’s productivity as a result of the foreign country’s low living standard and large excess supply of labor.
Now, 20 years on from the signing of NAFTA and GATT, our governments’ enthusiasm for bilateral and multilateral trade agreements is undimmed, despite the social upheaval and economic destruction they have left in their wake. Indeed, our governments now seek to take “free” trade to a whole new level, far beyond what was originally envisaged for NAFTA and GATT.
If signed, the new generation of trade deals would sound the final death knell of what remains of nation-state sovereignty (as I previously warned here and here), while doing next to nothing to improve economic conditions on the ground. Of particular concern is the Transatlantic Trade and Investment Partnership (TTIP), which seeks to bind together the world’s two largest markets, the U.S. and the EU, under a homogenized regulatory and legal superstructure designed for the exclusive benefit of transatlantic corporations and banks.
Unsurprisingly, most of the official (i.e. European Commission-commissioned) assessments of TTIP predict gains, albeit negligible ones, in trade and GDP for both the EU and US. Some even predict gains for non-TTIP countries, suggesting that the agreement would be a win-win for just everyone.
However, according to a new study by Tufts University Professor Jeronim Capaldo, these rose-tinted forecasts rely on methods virtually unchanged from the models used to promote the liberalization of markets in the 1980s and 1990s. As then, they assume that the “competitive” sectors of the economy would benefit from the enhanced trade conditions while the losses racked up in the other sectors would be offset by falling salaries and rising employment.
This assumption is provably false. As recent experience in Southern Europe has shown, lower salaries do not necessarily translate into the creation of new jobs. In fact, according to Capaldo’s findings – based on the UN’s much more up-to-date Global Policy Model – not only would the TTIP not create new jobs in Europe, it would destroy in the space of ten years a net total of roughly 600,000 jobs.
It would also lead to the further erosion of workers’ earnings, a trend that would be most sharply felt in France (with average salary reductions of €5,500 per worker), Northern Europe (€4,800 per worker), the UK (€4,200) and Germany (€3,800).
But that’s just the beginning. The TTIP could have adverse effects in a host of areas, including:
- A significant net reduction in European exports for as long as a decade after it is signed. The economies of Northern Europe would suffer the biggest losses (2.7% of GDP), followed by France (1.9%), Germany (1.4%) and the UK (0.95%).
- A net decline in GDP, once again most keenly felt in Northern countries (-0.5%), France (-0.48%), and Germany (-0.29%).
- A continuing down-trend in the labour share of GDP – already one of the major contributing factors to Europe’s current stagnation. By contrast, profits and rents will take up an ever larger piece of the GDP pie; in other words, there will be a further transfer of resources from labour to capital, with the largest transfers forecast to take place in the UK (7%), France (8%), Germany and Northern Europe Europa (4%).
- A sharp decline in public revenues. The surplus of indirect taxes (such as sales taxes or value-added taxes) over subsidies will decrease in all EU countries, with France suffering the largest loss (0.64% of GDP). Public deficits will grow in each and every European country, pushing public finances close to, or far beyond, the limits set in the Maastricht Treaty.
- Increased financial instability and imbalances. With decreasing export revenues, dwindling salaries and shrinking public revenues, internal demand would have to be sustained through profits and investment – no easy thing at a time of weak consumer spending. Indeed, the only realistic way profits and investments (primarily in the form of financial assets) could be sustained – at least in the short term – would be through increased asset prices (i.e. new bubbles) with results that are already all too familiar.
Capaldo’s study should provide serious pause for thought on the old continent, for it shows that TTIP would unleash a full-frontal attack not only against labor rights, environmental regulations, food sustainability, and democracy, but also against the region’s already floundering economic health.
Ironically, by signing the TTIP, the EU could well be signing its own death warrant. Thanks to the myriad flaws in the single currency regime, the financial imbalances and instability in Europe are already so pronounced that they represent an existential threat to the region’s economic health, social cohesion, and political unity. As Capaldo’s findings suggest, any significant increase in trans-Atlantic trade can only be achieved at the expense of intra-EU trade, meaning that imports from the US and imports from non-TTIP countries through the US would replace a large portion of current trade among EU countries.
All of which makes you wonder: if the potential social economic costs of intensified integration are so great and its benefits so paltry – at least for the vast majority of people – why are our elected representatives so set on signing TTIP? It’s a question that all Europeans and Americans should be asking right now; unfortunately, most don’t even know it’s happening. By Don Quijones.
On the other end of the spectrum of the EU, extreme wealth is not just subject to virtually no tax; it is a magnet for public funds. Read… The Smiling Face of Austerity: More Welfare for Rich Landowners in the EU
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I’m surprised this proposed free trade deal screws average people. In fact, to find a similiar situation, you only need look at every other free trade deal ever entered into.
All of these crazy deals will not help the corporate elite,they are tied to the middle class whether they realize it or not.We are all heading for a massive deflationary correction,rich & poor together!
All of these schemes will impoverish middle class small business’s & workers.The middle class’s are the bulk of the consumers in our consumer driven economy.If the middle class’s are broke & have no credit they cannot buy the products sold by big business.If the giant corporations can’t sell their products due to lack of customers,they close their doors & go out of business!If they go out the investors who own them take huge financial hair cuts.Enough financial default & we have deflation & bankruptcy.
PS: Many years ago Walter Reuther was the leader of the Auto Workers Union.As the story goes Walter was walking through a General Motors plant in Detroit.Walking with him was an important GM official.This GM official was trying to give Reuther a bad time by showing him all of the robots working in the plant.He told Reuther that they were doing the jobs formerly done by Union workers & soon GM wouldn’t need UAW workers.Reuther responded by telling the GM exec. that if that is the case he “should try selling his cars to the robots”!
That Quote sums up the situation we have today,no middle class,…..no financial elite!
I take it you know what happened to the
Luddites?
The same snide humour could have been used to refer to the factory machinery 200 years ago.
I am not an economist or other kind of specialist in the area, but it seems to me that free trade agreements in and of themselves are not bad things. But, modernized, streamlined international trade is only one side of the prosperity coin. Politicians must modernize and streamline the other side of the coin – the domestic market – at the same time. This politicians have refused to do – most likely for personal or party reasons of money, graft, power, cronyism and job security. The US would do a lot better with international trade deals if our domestic market was reformed and rationalized and brought into the 21st century in a whole variety of areas from taxation to land use to official Environmental obstructionism, labor regulation, legal environment, burdensome regulation for just about every economic activity, etc.
I seriously had better expectation from this site. I am all in for pointing out the flaws of bubble finance, the fed and central bank created booms, but that is very different from being anti-free trade, and anti-market.
This article assumes that Europeans and Americans deserve to be middle class by some god given right and if ever they have to compete for this middle class status-that is something very unfair.
Whilst I have enjoyed much of Don’s prolific output, this article is complete blather. Poor employment statistics are blamed on a trade deal whilst during the same period interest rates have fallen 90% and government has grown to levels never before seen. To quote France amongst the statistics as a country negatively affected by free trade is farcical.
It was only last week I read another article by Don explaining how NAFTA is responsible for bringing Mexico to it’s knees.
Free trade does not empoverish nations. Mercantilism, political entrepreneurism and the financial oppression of central banks are better places to look for the culprit. Nations do not trade: People do. Any obstacle to people buying from whom they wish to is obviously an impediment to an efficient market.
No mention also is made above of the tens of millions of people on lower wages who have been pulled out of poverty by freer trade. I feel no greater obligation to support my countrymen economically than I do a person on the other side of the world. And why should I? We live in one world and wearing blinkers with regard to what’s going on beyond the artificial border of what we call a country is a purely artificial distinction.
Hi Michael,
First of all, thanks for the compliment. I’m glad you enjoy most of my output. Clearly you didn’t enjoy this article, though.
Let me try and explain my position: the main reason I wrote this article was to highlight a new study that challenges the general belief that TTIP would result in a win-win for parties involved. Also, as I’ve consistently pointed out since I began writing about this new generation of trade deals, they have very little to do with trade. Ultimately they are about determining where ecocomic power and ownership should reside in the coming decades.
A perfect case in point is the issue of intellectual property. In the biltareral trade agreements between Colombia and the U.S. Colombian peasant farmers have had their seeds destroyed in order to strengthen U.S. agrubusinesses’ hold on the Colombian market. Would you call that free trade?
Across the world’s developing nations the ability of home grown pharmaceuticals to create generic medicines is under threat. As a result millions could die, and all to keep the profits of the world’s largest pharmaceuticals in fine fettle. Would you call that free trade?
It’s also worth pointing out that while the U.S. and EU promote these kind of trade agreements, pushing weaker countries like Mexico, Ecuador and Colombia to open their markets to all and sundry, they themselves continiue to give billions of dollars and euros in subsidies to some of their biggest corporations. Those coporations are then able to flood the newly conquered markets with below-cost price products, wiping out home grown competition. This is exactly what happened to Mexico under NAFTA — millions of smallholders were driven out of the market and off their own land by state-subsidised competitors. Now, would you call that free trade?
That’s not to say that some Mexicans have not benefitted from NAFTA. The country’s middle class has grown, yet at a much slower rate than other Latin American countries such as Brazil.
The way I see it is that genuine free trade, as you point out, has the potential to lift millions out of poverty. Indeed had Europe and the U.S. genuinely opened up their markets to producers in Asia, Africa and Latin America the levels of poverty in those regions world would be much lower. Instead they flooded the markets with our surplus products, destroying the livelihood of millions, and subjecting nations to complete dependence for the most basic commodities on international markets — markets that are to a great degree controlled and manipulated by Western banks.
Finally, I entirely agree with you that central banks have played a central role in creating our current conditions of economic malaise. But they, too, and the banks they represent have benefitted enormously from the bilateral and multilateral trade agreements signed in recent years.
As Greg Palast reported in last year’s “End Game Memo” article, the financial services agreement (FSA) part of WTO legislation forced all 156 member nations of the WTO to open up their financial markets to Citi Bank, JP Morgan and their trillions worth of derivatives products — at the behest, no less, of Timothy Geithner, Robert Rubin and Larry Summers (read the article here: http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo).
You see, that is the problem I have with many of these so-called “free” trade agreements: they are not free (weaker countries have little choice in signing them) and in many cases have little to do with trade.
The big international trade agreements (ITAs) are great for multinational corporations (MCs). The ITAs were sold to the public as opening foreign markets to domestic companies. In reality, they allow companies to move their factories to foreign low-wage, low-regulation countries while retaining access to 1st world markets for the sale of their now cheaply-produced goods. The middle class was hollowed out as its high-paying industrial jobs disappeared to Mexico, China, Malaysia, etc. Easy and generous credit allowed America to maintain the illusion of prosperity as the jobs disappeared, until debt saturation and Wall Street excesses killed the party.
The low-wage countries saw increased employment in industries, but pollution from unregulated industries has poisoned their water, soil, and air, and their farmers were driven out of business by the subsidized produce from 1st-world agribusinesses. Pesticide-dependent GMO crops now have them on a treadmill. Intellectual property laws are jealously protected by ITAs, again benefiting the MCs and extending their control and power in ITA partners.
But perhaps the greatest benefit to MCs is that they have a status under ITAs that puts them beyond the control of any government. The ITAs provide that no government is allowed to enact any law that impedes market access, at peril of massive fines payable to the MCs, and that ITA arbitration panels have sole jurisdiction to decide trade disputes. Few governments foresaw the loss of sovereign jurisdiction that these ITAs imported.
Meanwhile, MCs are empowered to hide profits from taxation, making use of tax havens to launder profits, and moving laundered profits to Wall Street and London City (for example) to play financial markets. The recent news on J.C. Juncker, the new EC Commission head, and former head of Luxembourg where he was instrumental in setting up tax-avoidance schemes for international businesses, highlights the cooperation of the EC in tax avoidance schemes for MCs.
Thus, ITAs are dream agreements for MCs but nightmares for governments and their populations. MCs, as enabled by ITAs, are now a new Superclass of sovereign entities largely beyond the control of governments.
The TPP and TTIP are intended to bind the Asian and EU markets and financial systems into a US-dominated trade bloc, weakening the power and influence of the BRICS and Shanghai Cooperation Organization blocs. The US, the heads of major MCs, and the big financial firms of New York and London see this as a key strategic move in maintaining US economic and military hegemony, under which the MCs and financial firms have flourished. TTIP will weaken further the power of the EC and EU countries to maintain their sovereignty over domestic laws that control imports, food standards, GMOs, intellectual property, and financial market controls.
I cannot overstate my recommendation of the video of the James Goldsmith vs Laura Tyson interview. IMHO, everything Goldsmith tried to warn us about has come about, and every argument raised by Tyson in favor of GATT, NAFTA and the WTO has been disproved. The idea that US workers would benefit from opening foreign markets to US producers is completely trashed by our experience. The best-known example is WalMart, now the US’ biggest employer, where 96% of their wares are made outside the US (94% or so in China). A “Made in USA” sticker is now becoming a rare cultural icon. When Tyson said the trade agreements struck down foreign trade barriers and improved intellectual property protections for US businesses, she was quite correct – but the biggest benefits to US businesses were taken by the multinational (or “transnationals” as she called them) corporations that moved their factories out of the US into low-wage countries, shedding US workers and US regulations as they went.
As Goldsmith pointed out, GATT allowed capital to increase its profit margins by decreasing the portion of value added that went to labor, thus upsetting the social balance that had been built up in developed countries. The US is now exhibiting the effects of the loss of worker income and social strains Goldsmith warned about.
Ross Perot warned about “The Great Sucking Sound” of NAFTA as jobs were sucked out of the US by Mexico. Very prescient. Ironically, Mexico has complained about the loss of “their” jobs as the jobs that first moved to Mexico from the US under NAFTA have now moved to China under GATT and WTO.
Henry Ford paid his workers double the going rate when he opened his first assembly line factories. Big businessmen criticized him severely, but he pointed out that businesses could not expect the public to buy the new mass-produced products unless their pay packets allowed them to buy. Modern business, governments, and their economic advisers have forgotten Henry Ford’s wisdom – they keep trying to get the public to increase consumption, but the public are being starved come payday.
I thought the TPP & TTIP disputes resolution was for after the USD crash so that Bondholders could control the assets of governments worldwide – including the US