Sunday, May 17, 2015

An Example of News Commentary from Economist Noah Smith

Noah Smith explains a couple reasons why he believes the TPP to be a good thing. The TPP has been a major news story recently and this analysis and evaluation is a good example of what could potentially be done with some of your IA commentaries. All it would take is finding a news article on the TPP without all the analysis done in this post and you could apply similar thinking to your own commentary.

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But there are two big reasons why the TPP is different.

First, past deals to liberalize trade -- such as the entry of China into the World Trade Organization in 2000 -- were focused on trade with developing countries. These countries, including China, have a lot of labor and not much capital in the form of roads, buildings and machines. When we open up trade with them, the global supply of labor becomes more abundant, and hence less valuable -- American workers end up competing with overseas workers who can do half the job for a tenth of the price. This is known as factor price equalization. It tends to drive wages down, killing good blue-collar jobs in areas such as manufacturing that can be easily outsourced.

The TPP is different. It’s mostly about trade with Japan and South Korea, which has asked to join the pact. These are rich countries, with tons of capital and very high labor costs. In fact, Japan’s labor costs are so high that Japanese auto manufacturers now build a lot of factories in the U.S. American workers are not going to lose out to the Japanese and South Koreans.

Yes, TPP might include a few poor countries, such as Indonesia, which has expressed interest in joining the accord. But compared with China, those countries are small potatoes. Very few manufacturing jobs will be lost to low-productivity Indonesia that haven't already been lost to medium-productivity China.

The second reason TPP isn't like past trade deals is the intellectual property protection. These provisions have had libertarians up in arms -- Rand Paul, for example, has joined the TPP opposition. Democrats who don’t like the direction libertarians have taken our country since 1980 should think twice before getting on the bandwagon with their old adversaries on economic issues.

There is one type of activity that is very hard for U.S. companies to send offshore: innovation. But when Asian countries can just ignore U.S. patents, innovation becomes less profitable. Stronger international IP protection will help U.S. companies export more, which makes them hire more American workers, which increases the amount that those workers spend on the local economy. Yes, there are many problems with the U.S.’s intellectual property laws. But international harmonization of IP wouldn't exacerbate these problems.

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