Posted Sept. 17, 2016, at 9:56 a.m.
The Trans-Pacific Partnership, a proposed trade pact between the U.S. and 11 Pacific Rim nations that would create the world’s largest free-trade zone, would have a small but mostly beneficial impact on Maine.
The state stands to see modest gains from increased trade around the Pacific Rim by 2032, according to a draft analysis from the Margaret Chase Smith Center at the University of Maine. Under the trade pact, which will cover 40 percent of the global economy, Mainers will see slight income gains, allowing them to buy more while boosting exports of valuable Maine products, especially lobster.
But the sheer size of the trade pact has sparked concerns that it will undermine U.S. manufacturing and lead to job losses in Maine and across the country. The pact is likely to hasten losses in Maine’s manufacturing sector, as competition from low-cost imports pushes struggling local producers out of the marketplace.
“The effects on Maine and the United States are going to be relatively small. There will be some losses hastened by the TPP … but those losses will be very heavily concentrated,” Philip Trostel, an economist at UMaine and one of the study’s lead authors, said.
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Gains for Maine
Overall, the Pacific trade pact is a net gain for the Maine economy, though a small one, the report concluded. Maine exports to TPP nations, such as Japan and Vietnam, would increase by $143 million per year. Maine exported $2.7 billion worth of goods last year. Exports to Canada alone were valued at $1.3 billion.
The increased trade would grow the state’s gross domestic product by $138 million annually, but that also is a fraction of the value of Maine’s GDP that reached about $50 billion last year.
Gains under the TPP for Maine are small because the U.S. already has free trade agreements with six of the 11 TPP nations, including Maine’s most significant trading partner, Canada, Trostel said. As a result, tariffs already are low with these nations and trade flows freely.
The Obama administration has said U.S. small businesses would benefit from tariff reductions on made in America products through expanded access to growing markets in Asia. But Rep. Stacey Guerin, a Republican from Glenburn who sits on the Maine Citizen Trade Policy Commission and co-owns R.M. Flagg Food Service Equipment Co. in Veazie, said Maine small businesses aren’t likely to see any advantages from the TPP.
About 63 percent of Maine small businesses employ fewer than five people, and the opportunity for those firms to penetrate foreign markets may be limited. Currently, only 1,001 businesses in Maine export products to TPP nations, according to the International Trade Administration.
“Most Maine employers aren’t going to be affected by the TPP, although some firms will see increased trade opportunities and expand,” Trostel said.
Free trade with these countries also mean cheaper imports as well as growth in earnings from exports of U.S. products. Savings from lower priced goods would give Mainers additional money to spend elsewhere in the economy. In fact, Mainers would see their annual income rise by an average of $163.
Savings for consumers are highest among low and middle classes, who spend far more on clothing and food. On average, liberalized trade increases consumer spending power by 8 percent, according to 2015 National Bureau of Economic Research study.
Under the agreement, Maine’s service and agricultural and food sectors would see an increase in demand, fueling growth in exports and employment. The lobster industry is one expected to benefit from the trade pact, with its proven ability to penetrate foreign marketplaces, Trostel said.
Under TPP, Japan’s 5 percent tariff on lobster products would be eliminated. Within 15 years, all seafood Japan imports from TPP nations will come in, duty free. In 2015, Japan was the second most lucrative destination for Maine lobster exports after Canada.
“We’ve already seen this with the free trade agreement with South Korea. That caused a significant increase in lobster consumption over the last couple years,” Emily Lane, vice president of export sales and marketing of Calendar Island Lobster Co. in Portland, an exporter of frozen and processed lobster, told the BDN last year.
After the U.S.-Korea Free Trade Agreement took effect in March 2012, tariffs on lobster exports fell from 16 percent in 2012 to 4 percent in 2015. Korean tariffs on lobster will be eliminated completely this year. Between 2012 and 2014, Maine lobster exports to South Korea climbed significantly — from $2 million to $11 million.
Threat to footwear
On the other side of the ledger, TPP could hasten the decline in the state’s manufacturing sector. That’s generated stiff opposition to the trade pact here, where several mills have closed recently and wounds from the North American Free Trade Agreement still are raw.
Earlier this year, the Legislature passed a symbolic resolution opposing the TPP. U.S. Reps. Bruce Poliquin and Chellie Pingree oppose the trade pact. Neither of Maine’s senators have taken a firm stance on the TPP, although Susan Collins said in a statement in May 2015 that she may “ very likely” vote against it.
Former Maine Senate Majority Leader Troy Jackson, a Democrat from Allagash and outspoken critic of the trade pact, places the blame for the erosion of manufacturing in the state at the foot of foreign competition. Free trade agreements, he said, “make it easier” for companies to offshore manufacturing to countries with lower labor and environmental standards.
That makes it difficult for domestic manufacturers to remain viable, he said. The trade pact does pose a threat to at least one major manufacturer in the state: New Balance.
Boston-based New Balance maintains shoe factories in Norway, Norridgewock and Skowhegan that employ about 900 people. The trade pact would phase out in the first year tariffs on imported footwear made in Vietnam. A loss of those tariffs potentially could make New Balance’s domestic production of footwear unviable, according to the Margaret Chase Smith Center’s analysis.
About 98 percent of all footwear sold in the U.S. is imported, according to the American Apparel and Footwear Association. U.S. companies and consumers paid nearly $2.7 billion in tariffs on footwear in 2014, and $430 million of those tariffs would be eliminated under the trade pact, much of that on imports from Vietnam.
The most significant impact of these reductions would be shifting footwear manufacturing to Vietnam from other countries as a source of U.S. imports, according to a 2013 study commissioned by the Footwear Distributors Group. Vietnam already accounts for a quarter of shoes imported into the U.S., up from 16 percent in 2010.
A buy-American provision under debate in Congress for inclusion in a defense spending bill could buttress New Balance against competition from cheap footwear imports, Trostel said. That provision would force the U.S. Department of Defense to buy its shoes for military recruits, potentially adding 200,000 shoe orders per year for the company.
“Increased competition from Vietnam is going to be more than offset by the military contract,” Trostel said.
Trade and job loss
The connection between free trade and job loss is disputed.
Since the 1990s, Maine’s manufacturing sector has suffered deep losses in employment, about 33,000 jobs from 1994-2015. Those losses were most concentrated in paper and wood products, leather products and transportation.
But a close look at data from the federal Trade Adjustment Assistance program, which assists workers displaced as a result of competition from imports, suggests other causes are at work. Foreign trade contributed to only 27 percent of mass layoffs in Maine between 1996 and 2012, the Margaret Chase Smith Center analysis found.
So while imports did contribute to job losses in Maine, other factors such as technological advances likely played a bigger role. And those are changes that would have happened even without free trade, Trostel said.
“What international trade does is speeds up the process of job creation and destruction. But these changes are going to happen whether or not the TPP gets passed,” Trostel said. “It’s not a matter of if, it’s a matter of when.”