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Small Businesses Have a Stake in Trans-Pacific Free Trade Debate

April 30, 2015
Small Business
Small Businesses Have a Stake in Trans-Pacific Free Trade Debate
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Headlines in the debate over the proposed Trans-Pacific Partnership free trade deal have focused on its potential effects on overall U.S. jobs and economic growth. But small businesses should be paying attention, too, academic experts tell NerdWallet.

That’s because the accord among the United States and 11 other countries on the Pacific Rim would create new opportunities for some firms while forcing others to face stiffer competition.

“Every change in trade policy creates winners and losers,” says Debra Glassman, a senior lecturer at the University of Washington’s Foster School of Business who specializes in international trade. “There’s no way to craft a treaty or legislation that benefits everybody.”

Debra Glassman University of Washington

Debra Glassman of the University of Washington says there’s simply no way for a trade treaty to benefit all parties. 

Critics, led by Sens. Elizabeth Warren and Bernie Sanders, warn that the Trans-Pacific Partnership would benefit mainly big U.S. corporations while causing a decline in U.S. wages and the loss of American jobs. They also say the deal would weaken environmental regulations and laws related to food safety, and they lambaste the Obama administration for not disclosing details of the proposed accord.

President Barack Obama, who’s asking Congress to approve the deal, rejects such arguments, saying in his April 25 weekly radio address that the pact features “strong provisions for workers and the environment — provisions that, unlike in past agreements, are actually enforceable.”

He also affirmed a key aim of the pact, which does not include China: to strengthen the United States’ political and economic position in the Asia-Pacific region.

“If America doesn’t shape the rules of the global economy today, to benefit our workers, while our economy is in a position of new global strength, then China will write those rules,” he said. “I’ve seen towns where manufacturing collapsed, plants closed down, and jobs dried up. And I refuse to accept that for our workers. Because I know when the playing field is level, nobody can beat us.”

But for small businesses, that depends on the field they’re playing on and their ability to adapt to the market changes the Pacific free trade pact would bring.

Competitiveness counts

Brent Haddad

Brent Haddad

“Making it easier to import and export will help small businesses that can compete in the other markets,” says Brent Haddad, director of the Center for Entrepreneurship at the University of California, Santa Cruz.  “Less competitive businesses will have to adapt.”

Glassman cites the example of small businesses that use dairy products in their offerings, such as sandwich shops and delicatessens. Cheaper dairy products from, say, New Zealand, as a result of the trade pact, could be good news for these shops, she says.

“If you reduce barriers, any business that uses dairy products as an input may offer cheaper products to customers,” she says.

But there’s a flip side. “Let me turn the dairy argument around,” Glassman says. “If you are a small producer of cheese or a distributor who represents dairy producers in the region, and all of sudden new competitors come in from overseas, you may suddenly find your market not so secure.

“You have to either make some changes or you’re in trouble,” she adds. “The effect on you and your market could be big. It could be life or death for your business.”

Christopher Tang

Christopher Tang

But such challenges could also force small businesses to be more nimble and creative.

Christopher Tang, a business professor at the Anderson School of Management at UCLA, cites the example of small coffee shops in the U.S., many of which have long been pressured by the big chains, led by Starbucks.

Pacific free trade would give these companies access to cheap coffee beans from countries like Peru and Vietnam, he adds. But small coffee shops could also explore other strategies to meet that challenge, such as forming consortiums to buy coffee beans in bulk, he adds. “Otherwise, they cannot compete,” he says.

Leaning on quality

Adina Ardelean, a lecturer who teaches international economics at the Leavey School of Business at Santa Clara University in California, also paints double-edged-sword scenarios. “Any kind of trade would harm some sectors but would also benefit others,” she says.

Adina Ardelan

Adina Ardelean

For example, she says, small businesses that make clothes, shoes and other footwear will likely face more competition from such countries as Vietnam and Malaysia. But the Pacific free trade accord could also open up new opportunities for some of these firms, particularly those selling higher-quality items made in the United States. In fact, they could leverage that fact and charge “a price premium” for apparel and footwear because they’re “Made in the U.S.A.,” she says.

Haddad, of UC Santa Cruz, also argues that “although we associate weaker competitive businesses with the ‘old economy,’ we can still compete there by meeting customer needs with innovative, attractive products.”

He points to his city of Santa Cruz, where “many small manufacturers have substantial international sales due to attractive designs and innovative features.”

Ardelean identifies another possible U.S. small business winner in the proposed accord: wineries and breweries. Small wineries and breweries currently face stiff trade barriers in trying to sell their products in such countries as Malaysia and Vietnam, she says.

“By removing these barriers, some of these wineries and breweries would have access to these countries,” she says. “They will take advantage of the growing incomes in these countries. Over time, consumers in Malaysia will become richer and will be willing to buy more expensive wine.”

Learn more

Those wanting more information can find plenty of resources arguing for and against the proposed Trans-Pacific Partnership, which would cover the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Benjamin Pimentel is a staff writer covering small business for NerdWallet. Follow him on Twitter @benpimentel, on Google+ and on LinkedIn.

Image of container ship nearing port via iStock. Glassman photo courtesy of the University of Washington. Haddad photo courtesy of the University of California, Santa Cruz. Tang photo courtesy of UCLA. Ardelean photo courtesy of Santa Clara University.