Trans-Pacific partnership will fuel the Texas job engine

This commentary originally appeared in Investor's Business Daily on May 21, 2015.

An Econ 101 course explains what the classical economist David Ricardo introduced in the early 1800s as the concept of comparative advantage.

To summarize: It's not beneficial for countries to produce everything they want to consume. Instead, they should produce what they can at a lower opportunity cost, thereby wasting fewer relative resources and advancing specialization so all parties involved can benefit from trade. Free trade provides more opportunity for people to prosper.

Without free trade since World War II, a Peterson Institute for International Economics study finds, an average American household would have almost $13,300 less in income per year. It would be particularly depressing given the stagnant wages for many in that period.

Despite numerous benefits of free trade, congressional approval to provide fast-track authority for the Trans-Pacific Partnership (TPP) has provoked concern among liberals and conservatives.

If a clean free trade agreement were made amongst the 12 TPP nations, the treaty would benefit the U.S. and especially the state of Texas.

Though research shows that countries should be cautious when joining a regional free trade agreement due to increased exposure to economic volatility among member countries, reducing trade costs is beneficial, on net, for all involved.

Nafta Success

In addition to the U.S., the TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Lower trade barriers among these 11 TPP countries, with 480 million people representing 15% of global trade, would further boost prosperity in the U.S.

It's important to consider the economic gains to U.S. states from free trade.

For example, research finds that the 1994 North American Free Trade Agreement (Nafta) contributed to Texas' becoming more resilient to both oil-price fluctuations and economic volatility compared to the rest of the nation as the Lone Star State's economy diversified to meet increased opportunities to export to Mexico and Canada.

Nafta and pro-growth policies helped Texas lead the nation in exports for the last 13 consecutive years, supporting millions of jobs in firms both small and large.

Among the top 25 countries exporting from Texas, the Census Bureau notes that Mexico, Canada, Singapore, Japan, Chile, Peru and Australia (in order of magnitude) are TPP nations.

Texas' exports to these seven countries add up to $154 billion, or 53.3% of the state's $289 billion total exports in 2014. This total is a remarkable 17.8% of all U.S. exports, from a state that represents less than 10% 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, the TPP could further the state's leading status in exports and create more opportunities to prosper. This is important because Texas has been the nation's jobs engine.

California would likely gain from TPP but by less than Texas because of fewer transactions with member countries and higher costs of doing business.

Lone Star Preference

The top 25 export countries from California in TPP include Mexico, Canada, Japan, Singapore, Australia, Chile and Malaysia. California's exports to these seven countries are only 45% of the Texas export total, or $69.3 billion.

Adding to Texas' gains in exports will be the completion of the $5.25 billion project to double the capacity of the Panama Canal next year. This project could take business from the nation's largest port complex in California and send it at lower cost to Texas.

Though both California and Texas would benefit from lower trade costs with TPP countries, many of those countries' firms may prefer to ship their products to Texas upon completion of the canal project.

Driving this choice are Texas' right-to-work status, which decreases the chances of costly labor disputes like the one that happened recently at West Coast ports, and California's 40% higher cost of doing business.

Shipments to Texas ports could reduce the West Coast ports' congestion — which, the consulting firm Kurt Salmon finds, could cost tens of billions of dollars more in 2016, driving up consumer prices, dampening wage growth and muting job creation.

Texas would benefit from increased economic activity and a growing tax base due to the widening of the Panama Canal, especially after the state improves its transportation infrastructure, according to a stakeholder working group's 2012 report.

While the TPP may not be a perfect agreement, as Congress may give too much discretion to the president to fast-track this deal, more free trade along with the Panama Canal project could help take Texas and the nation to the next level of economic opportunity.

Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, free-market research institute based in Austin.