Will 'Obamatrade' Kill Another 1 Million Factory Jobs?

NEW YORK (TheStreet) -- The Trans Pacific Partnership, or Obamatrade as it's known to opponents, might be bad news for America's beleaguered manufacturing workers. That is, if it ever gets approved.

It's hard to come to any other conclusion after reading a recent working paper from the Federal Reserve that studied the effects of liberalizing trade with China in the past decade. The authors conclude that the U.S. lost 1 million factory jobs in just eight years through 2007.

The Trans Pacific Partnership could mean more of the same. By far the likeliest outcome will be "another trade-related disaster for U.S. domestic manufacturing," says Alan Tonelson, an international trade and manufacturing expert with more than three decades in the field.

The partnership would ease trade regulations between the U.S. and certain Pacific Rim countries, including Japan, the world's third-largest economy and a manufacturing powerhouse. A package of legislation giving the president the authority to complete the agreement was, at least temporarily, blocked in the U.S. House of Representatives last week.

The president still wants to move forward with the partnership, which supporters say will be good for America. That may be true unless you want to keep your job working for a domestic factory.

Why is Tonelson so pessimistic about what the agreement would do to manufacturing? You just need to look at the history, he says.

He doesn't mention it specifically but the May-dated study by researchers from the Federal Reserve and Yale University titled "The Impact of Trade on Labor Market Dynamics" should be Exhibit 1. It looked at the impact of increased Chinese imports in the period from 2000 through 2007.

That roughly corresponds to the period after China joined the World Trade Organization in 2001. The WTO's primary goal is liberalizing and harmonizing international trade.

The effect of China's entry into the WTO seems to have been dramatic for America, as China's exports to the U.S. doubled between 2000 and 2007.

"We find that increased Chinese competition reduced the share of manufacturing employment by [...] about 1 million manufacturing jobs," the report states. "California is the state that contributed the most to the decline in manufacturing employment (about 12%), followed by Texas. "

Other states that saw big declines in factory jobs, in descending order, were Pennsylvania, Ohio, North Carolina and New York.

The report does state that there were benefits to other parts of the economy over the "long run" as dislocated workers found new positions.

So will another million factory jobs get axed if the Trans Pacific deal is approved?

"That's certainly possible, but I think the production impact will be much more important," says Tonelson.

"Until recently we have had productivity gains, and that does have a depressing effect on employment," he says, since more efficient workers mean less hiring.

Which companies will be most hurt by the deal? Probably not the big multinational manufacturers like General Motors (GM), General Electric (GE) or even Apple (AAPL). Multinational corporations will benefit considerably from trade liberalization because they typically produce all over the world and would more easily be able to import products from overseas into the lucrative U.S. market.

Smaller companies that make the vast majority of their products inside America would be harmed much more, and Toleson says the deal would prove detrimental to the economy as a whole in the long run. 

"All hopes for maintaining a critical mass of manufacturing jobs and skills go down the drain with the TPP," he says. 

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