This commentary originally appeared in the Midland Reporter-Telegram on May 31, 2015.
Midland exports to foreign countries total $164 million with a large portion being petroleum-related products. More customers purchasing these products at a lower cost through passage of the Trans-Pacific Partnership (TPP) would benefit those in Midland and statewide.
In general, free trade benefits everyone. It allows for those who can produce a good at a lower opportunity cost to do so and specialize in producing that good.
Producers benefit from selling products, consumers benefit from purchasing desired products, and workers benefit from jobs these exchanges create.
This is the introductory Econ 101 lesson of comparative advantage coined by the classical economist David Ricardo in the early 1800s.
Unfortunately, governments have blocked free trade worldwide for political purposes at the expense of their citizens.
The current dilemma in D.C. over trade is whether Congress should give fast track authority to President Barack Obama to negotiate with the other eleven countries in TPP followed by an up or down vote on the submitted agreement.
Though there are legitimate concerns about giving President Obama too much control, such as negotiating to add provisions aimed at appeasing labor unions and environmentalists, the discussion should not overlook the benefits to Texas if a relatively good agreement is approved.
For thirteen consecutive years, Texas has led the nation in exports that support millions of jobs statewide. This is a testimony of the Texas model’s success from pro-growth policies and a diversified economy.
Unraveling the myriad trade barriers with TPP’s eleven other countries that include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam would make for a more prosperous Texas.
Among the top 25 exporting countries from Texas, the U.S. Census Bureau notes that the following, in order of magnitude, are TPP countries: Mexico, Canada, Singapore, Japan, Chile, Peru, and Australia.
Texas total exports were $289 billion in 2014 with exports to these seven countries making up 53.3 percent of that total at $154 billion. The total exports amount is a remarkable 17.8 percent share of U.S. exports from a state with less than 10 percent of the nation’s total economic output.
With such a large share of the state’s exports represented by TPP countries and potentially more exports demanded from lower trade costs, Texas could increase her leading status in exports after this agreement.
Research supports these potential gains to Texas from the TPP. For example, the North American Free Trade Agreement (NAFTA) contributed to Texas becoming more resilient to both oil price fluctuations and U.S. economic volatility as the economy diversified to meet increased demands from Mexico and Canada.
Texas could benefit further from more exports after the project to double the capacity of the Panama Canal is complete next year. Foreign businesses that ship their products to the nation’s largest port complex in California, where they are plagued by labor union uncertainty and high business costs, could find it profitable to ship them to the right-to-work, lower cost Texas.
A larger market for Texas products would benefit not only people in other countries, but it would also benefit Texans from more jobs and lower prices thereby advancing the economic benefits of the Texas model.
If President Obama invokes excessive protectionist provisions for specific groups, picking winners and losers, Congress should vote TPP down.
However, this agreement should at least be given a shot to make it through the process to potentially advance free trade so that market forces can work rather than market distortions caused by governments holding back prosperity in Texas.
Vance Ginn, Ph.D., is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at [email protected].