Why the Trans-Pacific Partnership will help the auto sector

Submitted by admin on Sun, 10/18/2015 - 01:48

The Trans-Pacific Partnership (TPP)—perhaps the largest trade deal in a generation—looks set to finally conclude. Rumours suggest a deal may be completed this week. With many (many) years of on-again, off-again negotiations, this is welcome news. Trade in goods and in services between 12 Pacific countries representing close to 40 per cent of the world’s economy may soon become much easier.

To most economists, this is cause for (cautious) celebration. Of course, there is a wide variety of complex issues being negotiated. Reasonable people can debate the intellectual property-rights provisions or the dispute-settlement mechanisms, but, broadly speaking: Trade is good for the economy.

But is it good for every sector? Not in general. The benefit of trade is that it allows us to focus on what we are relatively good at. That’s comparative advantage. Some sectors may shrink, while others grow. Recently, the discussion of the TPP is dominated by fears that Canada’s auto sector, in particular, may be one of those destined to shrink if the TPP goes through.

What, specifically, is the concern? It appears likely that the TPP will make it easier to bring in auto parts from outside of North America...

Economists typically point out that trade-induced losses in one sector are outweighed by gains elsewhere. But, in the case of autos, we can do even better: Canada’s auto sector itself stands to benefit from freer trade, not lose. As such, calls to maintain import barriers reflect an old way of thinking about trade, and will actually harm the very sector they are meant to protect.

How? The key is to think seriously about imported inputs—the bits and pieces brought in from outside the country that are used to manufacture goods here at home. More competition from abroad may be bad for some producers, but cheaper access to imported parts is good for most. Let’s see which effect is likely to dominate...

This has been excerted from the 30 September 2015 edition of Maclean's.