The Trans-Pacific Partnership: Trade’s
Prosperous Potential for San Diego
Thomas Baranga and Peter Cowhey*
School of Global Policy and Strategy, UCSD
March 13, 2016

Abstract
We survey the impact of the recently negotiated TPP on the US economy, andexplore its likely effects on the local San Diego economy. San Diego’s strong existing trade
links with the region, as well as its specialisation in sub-sectors such as research anddevelopment that are singled out for strengthened international protection under theagreement, make it likely that the San Diego region would enjoy a disproportionate
share of the gains enjoyed by the US economy as a whole.

Keywords: Trade

1 Introduction
In this paper we explore the likely impact of the recently negotiated Trans-PacificPartnership (TPP) on the San Diego region. If ratified and fully implemented, the TPP
will be one of the most ambitious trade agreements ever negotiated, deepening economic
and political ties between twelve diverse economies around the Pacific Rim.
The agreement goes beyond slashing tariffs (which are taxes of imports). It reduces
non-tariff barriers, such as regulations that discriminate against foreigncompetitors and encourages foreign direct investment. It includes extensive safeguards
for intellectual property, a key competitive asset of San Diego firms. At the same time, it
innovates by using trade rules to enforce international environmental and labor standards.
Nevertheless, the proposals remain a source of concern and uncertainty for many. One
natural question is the impact on US workers of closer economic ties with economies withmuch lower labor costs. Others fear that the attempt to harmonize standards andregulations risks the imposition of a one-size-fits-all approach that may be inappropriate for
economies at diffe r e n t stages of development, or which could neuter the authority of
democratic decision-making processes.
The unprecedented scope of the TPP makes it impossible to resolve these concerns
entirely - quite simply, nothing this ambitious has been attempted before, and it is impossible
Baranga is Assistant Professor of Economics, and Cowhey is Dean and Qualcomm Professor of the UCSD
School of Global Policy and Strategy. Correspondence to Baranga: GPS 0519, University of California - San Diego,
9500 Gilman Drive, La Jolla, CA 92093 (email: tbaranga@ucsd.edu; 858 822 2877). Our thanks to Melissa Floca forgenerously sharing her data on location quotients and input-output
table for the San Diego region.
1*

to foresee with certainty exactly how the agreement will be implemented in every respect. In
any event, the arguments about the national opportunities and risks for the United States from TPP areextensive. So, we leave this field to others. (See, for example, Plummer and Petri, 2016, or Scott and Glass,2016) Instead, we believe that it is useful to add texture to the debate over the TPP’s economic impact bylooking at a major metropolitan area, San Diego. Moreover, we believe that local leaders have to makeimportant decisions about their positions on this national policy issue, and thus we want to demonstrate how
a deep dive into available economic data can provide fresh insight on the trade debate at the regional level.
While this is a San Diego centric analysis similar exercises could be undertaken in other regions.
Our analysis leads us to conclude that San Diego stands to benefit disproportionatelyfrom the opportunities that the TPP presents for two reasons.
First, San Diego has a geographic advantage.
Despite notions that the world economy is highly integrated, international traderemains overwhelmingly determined by geographical considerations. Physical distance is by
far the most important factor driving the intensity of trade links between economies1. San
Diego’s prime location, on the edge of the Pacific Rim, facing both Latin America, thesouthern Pacific and Asia, means that it is a natural trading partner for TPP members.
San Diego already conducts a disproportionate amount of trade with the region, and the
reduction in trade costs that the TPP promises suggests that San Diego will reap adisproportionate share of the benefits.
Second, San Diego’s existing pattern of industrial specialization is well aligned withthe sectors that could expect to gain most from the TPP. San Diego is highly specialized inscientific research and development (such as biotech), services, and high-tech manufacturing,particularly with application to telecommunications and information technology. These
sectors have historically successfully appealed for protection to policymakers, who have sought
to promote strategic local companies at the expense of foreign partners. The TPP embodies
commitments by members not to discriminate against one another in this way, and includes
Chapters dedicated to the strengthening of intellectual property rights among members,
and ensuring fair competition and equality of market access in telecommunications. Since
San Diego enjoys a strong comparative advantage in these sectors, it is likely to benefit fromthe commitment by TPP partners not to handicap US firms in the future.
San Diego also boasts a large service sector, in part thanks to its exceptional climate
which supports extensive tourist-related activities. The jobs supported in this sector are
insulated from competition with foreign workers, being in essentially non-traded activities.
This suggests that downward pressures on wages from potential labor market competition
will be very limited. In fact, the prospects of strong growth in export sectors promises todeliver rising real wages for local workers.

2 Potential Benefits of the TPP to San Diego
We begin by briefly putting San Diego into the context of the impact of TPP on theoverall U.S. economy. Our purpose is not to resolve the dispute on its total impact on thenational economy. Instead, we want to clarify an important asymmetry in the existing tradesystem that disadvantages the US and which the TPP corrects.
The most sophisticated economic model of the impact of the TPP
Consensus estimates from gravity equation regressions are that the value of trade falls by about 1% for every 1% increase inbilateral distance (See Chaney (2015)). Distance also makes the largest contribution of any conventional trade barrier tothe R2, or fit, of standard empirical gravity equations.
21

w a s p u b l i s h e d b y Petri & Plummer (2016). (The computable general equilibrium modelthat underpins their forecast is a sophisticated analysis of 19 sectors across 29 regions.). Their
headline estimate is that by 2030 the TPP would raise annual US real income by $131
billion, or 0.5% of GDP, and annual exports by $357 billion, or 9.1%. They forecast thatworld income would rise by $492 billion, so that while the US would be the largest single
beneficiary, the gains would be shared widely among other members, contributing to thelikely political durability of the arrangement.
Such forecasts are necessarily uncertain for many reasons. Implementation of previous
Preferential Trade Agreements has not always adhered to agreed schedules. Quantifying theimpact of changes in non-tariff barriers, such as quotas, arbitrary standards and regulations
that discriminate against foreign companies, or unpredictable customs procedures, is as
much an art as a science. Or U.S. labor markets may not adjust in the way that the model
projects. As a result, even such sophisticated estimates are best regarded as an upper-boundon the likely gains. But the key point is that many of the gains projected in the model
come from correcting a current asymmetry between the openness of the U.S. market
compared to those of the other TPP countries. In other words, the status quo (no TPP)
works significantly against the United States
Put differently, the current trade policy regime of the US is already relatively
liberalized compared to most of its TPP trade partners. The reductions in protection offeredby other trade partners are significantly larger than the reciprocal concessions necessary by
the US, and so US exporters will enjoy a larger average reduction in the costs of doing
business.
Australia
Brunei
CanadaChile
Japan
Malaysia
MexicoNew Zealand
Peru
Singapore
United States
Vietnam

All Sectors
11.3%
N\A
4.8%
7.2%
8.9%
27.4%
15.2%
11.3%
9.3%
14.1%
5.7%
N\A

Agriculture
29.5%
N\A
18.5%
22.3%
38.3%
61.1%
28.3%
23.6%
25.7%
52.9%
17.0%
N\A

Manufacturing
9.8%
N\A
3.3%
5.9%
4.7%
24.5%
13.8%
9.1%
5.2%
12.7%
4.5%
N\A

Table 1: Overall Trade Restrictiveness Index, 2009
Table 1 presents estimates from Kee, Nicita & Olarreaga (2009) of the uniform
ad valorem tariff that would have led to the same volume of trade as the prevailing mix of trade
policies in 2009 for the 10 member countries for which data is available2. The US has low
average trade barriers compared to other TPP members, both in agriculture and forThis Overall Trade Restrictiveness Index (OTRI) reflects the a v e r a g e impact of both tariff and non-tariffbarriers, and is a useful summary measure of the stance of countries’ overall trade policy. Estimates are not available for
Brunei or Vietnam.
3
2

3

manufactured goods. This is particularly true for relative tariff levels . Kee et al. (2009)
estimate that the US maintains comparable non-tariff barriers to other partner countries.
Since there is much greater certainty about the implementation of the reductions in tariffs,
significant reductions in the relative costs facing US exporters are likely to be achieved
despite possible uncertainty about the speed with which non-tariff barriers will bedismantled.
The other asymmetry between the US and many TPP countries is in the treatment
of intellectual property protection and the liberalization of services tied to a high techeconomy. In both respects TPP significantly narrows the gap between US arrangements
for its domestic market and the practices of other countries.
Chapter 18 of the TPP requires that members ratify or accede to a series of additional
international agreements upholding international intellectual property rights: the MadridProtocol4; the Budapest Treaty5; the Singapore Treaty6; the International Union for theProtection of New Varieties of Plants7; the WIPO Copyright Treaty8; and the WIPO
Performances and Phonograms Treaty9. Since only the US, Australia, Mexico andSingapore among TPP members are already signatories to all of these conventions, thisrepresents a significant strengthening of the intellectual property rights of US-based
inventors and researchers.
As the next section shows high tech services are growing in significance in the San
Diego economy, partly because U.S. rules have provided a supportive environment for
innovators in these services. Yet, numerous barriers to these services have crept up in
recent years. Two examples illustrate the problems. One is growing restrictions on theuse of global cloud computing networks (like Amazon’s AWS) to drastically reduce thecost and improve the reliability of information technology that is essential to advanced
services (and many goods). The second is the restriction on the movement of data acrossnational borders so that a service (like engineering or cyber security support, to name two
San Diego specialties) can be supplied remotely10. TPP creates the first rules to limit theserestrictions on international commerce while acknowledging the right to regulate in a nondiscriminatory and transparent manner in order to protect privacy and security. These andother rules on services and non-tariff barriers, including curbs on regulations designed tofavor local over U.S. technologies, are significant for the U.S. economy as a whole but
especially for San Diego, as we now explain.

3 The tariff-based OTRI for the US is 1.3%, while the unweighted average across the nine other TPP members with data

is double that at 2.6%.
4 International Registration of Marks: Brunei, Canada, Chile, Malaysia and Peru are not yet signatories.
5 Patent protection for microorganisms: Malaysia, New Zealand and Vietnam are not yet signatories.
6 Trademark registration and communication technologies: Brunei, Canada, Chile, Japan, Malaysia, Peru and Vietnam are
not yet signatories.
7 Brunei and Malaysia are not yet signatories.
8 Strengthening copyright protection for software and databases: Brunei, Vietnam and New Zealand are not yet signatories.
9 Brunei, Vietnam and New Zealand are not yet signatories.
10 The most comprehensive summary of restrictions is: Anupam Chander and Ulyen P. Le, “Breaking the Web: Data
Localization vs. The Global Internet,” April 2014.
Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2407858.
42.1

Significant Sectors in San Diego’s Economy

San Diego’s economy is heavily oriented towards service sectors. Table 2 reports
employment levels in San Diego in 2013 across the 11 NAICS super-sectors, and compares
them to the US as whole.
NAICS
Super-Sector
Unclassified
Professional and business services
Leisure and hospitality
Other services
Construction
Financial activities
Information
Education and health services
Trade, transportation, and utilities
Manufacturing
Natural resources and mining
Total Employment

Employment
Level
San
Diego

US

3,906
165,321
222,969 18,478,164
167,164 14,195,179
45,615
4,149,819
60,6195,819,950
71,124
7,616,922
23,9282,703,250
177,380 20,204,352
211,558 25,606,723
94,507 11,994,922
10,1052,023,732
1,088,875 112,958,334

Employment
Share
SD
(%)

US
(%)

0.36% 0.15%
20.48% 16.36%
15.35% 12.57%
4.19% 3.67%
5.57% 5.15%
6.53% 6.74%
2.2% 2.39%
16.29% 17.89%
19.43% 22.67%
8.68% 10.62%
0.93% 1.79%

Location
Quotient
2.5
1.3
1.2
1.1
1.1
1
0.9
0.9
0.9
0.8
0.5

Table 2: San Diego Employment and Location Quotients by NAICS Super-Sector
The sectors are ordered by their Location Quotients. This metric provides a measure of
the relative specialization of the San Diego economy compared to the wider US economy.
Location Quotients are calculated as the fraction of local employment in a given sector, relative to that sector’s
employment share in the wider economy. When this measure of relative specialization in employment exceeds
one, it indicates an underlying comparative advantage in productivity11.
Ignoring the Unclassified sector, which represents a small fraction of both the San Diegoand wider US economy, San Diego’s economy is heavily concentrated in service sectors.
Professional and business services represent the largest single group, employing over 20% of the workforce,
which is 1.3 times larger than this sector’s share in the rest of the US. Other service categories,
such as Leisure and Hospitality, and Other Services are also over-represented, while
Manufacturing, Natural resources and Mining employ a much lower share of workers than
average.
Table 3 explores San Diego’s labor market in more detail, presenting the 10 4-digit
NAICS (North American Industry Classification System) sectors with highest local
employment. The top five employers are service sectors that reflect San Diego’s strengths
in tourism and professional services.
Of course the US economy as a whole is heavily dependent on services, and several of11

For more discussion of Location Quotients, see (Brugues, Combs, Cox, Bautista, Flyte, Fuentes, Luhn, Mason, Shirk &Wright 2014).
5

these locally significant sectors are major employers throughout the US. To tease out thesectors in which San Diego enjoys unusually high employment and underlying productivity
advantages, Table 4 presents the 10 4-digit NAICS sectors in which San Diego has the highest
Location Quotients, or relatively concentrated local employment.
NAICS
code
7225
5417
7211
6241
5613
6211
4451
5413
5511
6221

Employment
Employment
Level
Share
San
US
SD
US
Diego
(%)
(%)
Restaurants
104,499 9,361,504 9.79% 8.29%
Scientific research and development services 30,178 632,261 2.83% 0.56%
Traveler accommodation
27,559 1,780,096 2.58% 1.58%
Individual and family services
27,497 1,884,11 2.58% 1.67%
0
Employment services
27,139 3,257,19
2.54% 2.88%
4
Offices of physicians
26,647 2,430,043 2.5% 2.15%
Grocery stores
24,887 2,564,403 2.33% 2.27%
Architectural and engineering services
24,356 1,341,77 2.28% 1.19%
0Management of companies and enterprises 20,509 2,087,081
1.92% 1.85%
General medical and surgical hospitals
20,264 4,437,590 1.9% 3.93%
NAICS
category

Table 3: The 10 Largest 4-digit NAICS Sectors by Employment in San Diego
NAICS
code
3343
5417
3366
3342
4872
1114
7131
3345
7121
9999

NAICS
category
Audio and video
equipment manufacturing
Scientific research anddevelopment services
Ship and boat building
Communications equipment
manufacturing
Scenic and sightseeing
transportation, water
Greenhouse andnursery production
Amusement parks andarcades
Electronic instrument
manufacturing
Museums, historical sites,
zoos, and parks
Unclassified

San
Diego
1,984

US
19,115

SD
(%)
0.19%

US
(%)
0.02%

Location
Quotient
1130,178632,261

2.83%

0.56%

5.1

5,973
4,397

131,543
101,898

0.56%
0.41%

0.12%
0.09%

4.8
4.6

508

14,575

0.05%

0.01%

3.7

4,795

143,331

0.45%

0.13%

3.5

5,536

184,293

0.52%

0.16%

3.2

10,126392,459

0.95%

0.35%

2.7

3,601

141,242

0.34%

0.13%

2.7

3,906

165,321

0.37%

0.15%

2.5

Table 4: Top 10 4-digit NAICS Sectors in San Diego by Location Quotient62.2 San Diego’s Exposure to Trade with the TPP
Highly concentrated sectors are typically associated with exporting sectors. When aregion produces a disproportionately large quantity of a good or service, it trades it withother regions or countries. Since many services are personal (e.g. hair cutting), they areusually locally produced. In contrast, manufacturing, commodities like vegetables, andtradable services (such as scientific research, or tourism, where the consumer travels to theservice provider) can be supercharged by trade. These sectors are much more highly represented in
the list of San Diego’s sectors with unusually high concentrations of employment. Out of
the 304 4-digit NAICS sub-sectors, these 10 most highly concentrated sub-sectors employedover 70,000 people in 2013, or about 6.5% of San Diego’s workforce.
Of the 10 sub-sectors with highest LQs listed in Table 4, half involve trade inphysical goods that are recorded by US Customs. Table 5 reports the exports leaving the
San Diego customs district in 2015 for these sub- sectors, and compares San Diego’sexports to total US exports.
Table 5 also reports the fraction of these sectors’ exports that are sold to TPP member
countries. A strikingly high fraction of San Diego’s exports is sold into the TPP market. For four of the
fiv e sectors the TPP purchases over 90%, and for all five San Diego’s exposure to the TPP is much higher
than for the US as a whole.
San Diego

US

100% Exports to TPP Members

90
80
70
60

50
40
30
20
10
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 80 83 86 89 92 95 99

HS2 Chapter

Figure 1: TPP Market Share in San Diego and US Exports
These strong trade links between San Diego and the TPP markets are not an anomaly,
manifest only in San Diego’s high comparative advantage sectors. Figure 1 illustrates thefraction of both San Diego’s and the US’s exports destined for TPP markets, across therange of 97 HS2 Chapters tracked by US Customs. For every goods category, San Diego
exports a disproportionately larger fraction of its sales to the TPP than the US does as awhole. The lowest proportion of San Diegan exports destined for the TPP is 63.4% (HS38, Miscellaneous Chemical Products); for 85 of the 97 Chapters the fraction alreadyexceeds 90%; and for 17 Chapters 100% of San Diego’s exports are sold to the TPP.
7

This strong existing relationship between San Diego and the TPP can also be seen in
Figure 2, which illustrates, by HS2 Chapter, the fraction of US total goods exported from San
Diego, and the proportion sent to TPP markets. As is clear from the graph, San Diegoalready makes a disproportionate contribution to US exports to the TPP.
These strong trade ties are quite unsurprising, given San Diego’s geography, on theedge of the Pacific Rim, facing both Latin America and the Asia-Pacific, and the strong
influence that proximity exerts on aggregate trade f l o w s . US companies targeting exports
to TPP markets already have strong incentives to locate in the San Diego region in order tominimize transport costs.
This does not simply reflect San Diego’s proximity to one major TPP market (Mexico). The
last two columns of Table 5 recalculate the share of San Diego’s exports destined for TPP
markets, excluding NAFTA members. For all five sub-sectors, the remaining TPP markets
account for a significant fraction of San Diego’s exports, and at a much higher intensity
than for US exports as a whole.
SD's share of US exports to the TPP

SD's share of US exports

San Diego's share of US exports (%)

45
40
35
30
25
20
15
10
5

0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 80 83 86 89 92 95 99

HS2 Chapter

Figure 2: TPP Market Share in San Diego and US Exports
Table 6 reports the 10 HS2 Chapters for which San Diego had the largest trade volumes in2015. The Table also reports San Diego’s revealed comparative advantage in these sectors, andcompares them to the US as a whole. Revealed comparative advantage is a widely used measure toindicate a regions’ underlying relative productivity12. A revealed comparative advantage score in excess of 1
indicates that the good is exported more intensively from the home region than in the rest of the world. Unsurprisingly, San
Diego has a revealed comparative advantage in all 10 of its largest export sectors (although the US as a whole
does not necessarily enjoy a comparative advantage in all of these sectors).

First developed by Belassa (1965), this measure can be constructed from observed trade flows. A region i’s revealed
comparative advantage in sector j is calculated as the fraction of sector j in i’s total exports, relative to the fraction of
sector j in global exports. A region that exports goods in sector j at a higher intensity than the world average might beinferred to be relatively productive in sector j. The need to benchmark San Diegan exports against world trade flows motivatesthe shift to exports measured by the HS (harmonized system) classification, which is collected globally, rather than NAICS, whichapplies only to North America.
812NAICS
code
3343
3366
3342
1114
3345

NAICS
category
Audio & Video
Equipment
Ships & Boats
Communications
EquipmentMushrooms, Nursery &Related Products
Navigational/measuring/
medical/control Instrument

Exports

TPP (%)TPP (%)
ex. NAFTASan Diego
US
70.3
20.6

San Diego
565,378,491

US
9,593,436,456

San Diego
99.8

US
76.5

7,824,999
827,835,521

2,954,162,744
42,169,363,187

92.4
98.2

80.9
57.3

43.8
38.7

24
14.3

38,306,328

484,303,966

99.9

43.2

70.5

16

608,232,201

48,855,046,171

83.4

28.1

36.1

19.5

Table 5: Trade with the TPP for San Diego’s highest LQ sectors

HS
Code

HS
Category

85

Electric Machinery Etc;
Sound Equip; Tv Equip; Pts
Nuclear Reactors, Boilers,
Machinery Etc.; Parts
Plastics & Articles Thereof
Vehicles, Except Railway
Or Tramway, And Parts Etc
Optic, Photo Etc, Medic
Or Surgical Instrments Etc
Paper & Paperboard &Articles (inc Papr Pulp Artl)
Articles Of Iron Or Steel
Aluminum & Articles Thereof
Rubber & Articles Thereof
Wood & Articles Of Wood;
Wood Charcoal

84
39
87
90
48
73
76
40
44

San Diego’s
Exports
2015 ($)

Revealed
Comparative
Advantage
SD
US

SD’s
Share of US
exports

6,007,377,824

1.94

0.83

3.54%

2,836,825,519

1.09

1.2

1.38%

2,198,195,604
1,779,556,741

2.91
1.07

1.2
1.15

3.65%
1.4%

1,334,911,331

1.95

1.84

1.6%

746,868,384

3.53

1.12

4.76%

636,051,791
610,170,859
354,682,022
343,900,694

1.72
2.99
1.46
1.94

0.8
0.89
0.85
0.76

3.24%
5.07%
2.6%
3.86%

Table 6: San Diego’s Top 10 Goods Export Sectors
HS
Code

HS
Category

85

Electric Machinery Etc;
Sound Equip; Tv Equip; Pts
Nuclear Reactors, Boilers,
Machinery Etc.; Parts
Plastics & Articles Thereof
Vehicles, Except Railway
Or Tramway, And Parts Etc
Optic, Photo Etc, Medic
Or Surgical Instrments Etc
Paper & Paperboard &Articles (inc Papr Pulp Artl)
Articles Of Iron Or Steel
Aluminum & Articles Thereof
Rubber & Articles Thereof
Wood & Articles Of Wood;
Wood Charcoal

84
39
87
90
48
73
76
40
44

San Diego’s
Exports
to the TPP
2015 ($)

Fraction ofExports
to the TPPSDUSFraction ofSD’s Exports
to the TPP
ex. NAFTA

5,859,207,472

97.5% 50.7%

44.4%

2,780,620,003

98%

52.2%

43.4%

2,190,584,173
1,742,822,466

99.7% 56.6%
97.9% 60.4%

12%
64.1%

1,176,020,832

88.1% 34.6%

36.7%

746,399,800

99.9% 63.9%

1.2%

632,713,703
608,898,304
352,934,783
343,444,272

99.5%
99.8%
99.5%
99.9%

16.8%
35.5%
8.6%
13%

65.2%
63.6%
65.4%
46.5%

Table 7: Trade of San Diego’s Top 10 HS2 Export Sectors with the TPP
10

As reported in Table 7, the TPP is the dominant market for San Diegan exports
for all of these sectors, accounting for a much higher fraction of export sales than for
US exports as a whole. Even excluding exports to Mexico and Canada, the TPP remains avery significant market for San Diego, as reported in the final column of Table 7.
Table 8 explores San Diego’s exports in more detail. It presents the 10 6-digit HS
sectors with largest export volumes from San Diego in 2015, collectively in excess of $3.5
billion. TPP markets account for an overwhelming proportion of these sales.
HS
Code

HS
Category

854231

Processors And Controllers,Electronic Integ Circt
Pts & Access Of Bodies
Of Motor Vehicles, Nesoi
Articles Of Plastics, Nesoi
Instr & Appl F Medical
Surgical Dental Vet, Nesoi
Articles Of Iron Or Steel Nesoi
Reception Apparatus For
Television, Color, Nesoi
Compression-igntn Int
Combustion Piston Engine Etc
Pt F Elect Appr F Elect Circt;
F Elct Contrl Nesoi
Transistors Ex Photosenitive,
disspation Rate &lt; 1 W
Parts And Accessories Of
Motor Vehicles, Nesoi

870829392690901890732690852872840820853890854121870899San Diego’s
Exports
to the TPP
2015 ($)

Fraction of
San Diego’s
Exports
to the TPP

Fraction ofSD’s Exports
to the TPP
ex. NAFTA

780,810,404

99.83%

39.06%

422,666,989

99.98%

14.65%

406,219,994
325,256,535

99.51%
97%

13.33%
57.34%

307,861,304
305,631,046

99.98%
100%

21.56%
0%282,433,295

100%

0%

274,016,003

99.86%

31.13%

268,249,909

100%

100%

250,836,742

95.3%

0%

Table 8: Trade of San Diego’s Top 10 HS6 Export Sectors with the TPP
HS code854231870829392690901890732690852872840820853890854121870899

AUS
0
0-5
5
0
5
5
0-5
0-5
0
0-5

BRN
0
20
0
0-20
0
5
20
20
0
20

CHL
6
6
6
6
6
6
6
6
6
6

JPN
0
0
0-3.9
0
0
0
0
0
0
0

MYS
0
0-25
0-20
0
0-25
0-30
0
0
0
0-30

NZL PER
0
0
0-10
0
0-5
9
0
0
0-5
0
0
9
5
0
0-5
0
0
0
0-10
0

SGP
0
0
0
0
0
0
0
0
0
0

VNM
0
3-27
0-20
0
0-15
37
3-27
3-12
0
3-27

USA
0
0-2.5
0-6.5
0
0-8.6
0-5
0-2.5
0-3.5
0
0-2.5

Table 9: TPP Tariff rates for San Diego’s top 10 Export Sectors
Table 9 presents the current range of tariffs among TPP members for goods in these11

HS6 categories. Where a range of tariff rates is indicated, these represent the minimum andmaximum tariffs on goods in these categories. A single number implies that all goods in the
category face the same rate. For the sake of space, Canada and Mexico are omitted, since
they are members of NAFTA and so current MFN tariffs do not apply to US exporters.
Most of San Diego’s leading export sectors face moderate tariffs in TPP export markets,particularly in Brunei, Malaysia and Vietnam. Current US tariffs in these sectors are
relatively low, compared to TPP members. This suggests that US based firms will enjoy adisproportionate reduction in trade costs as a result of the TPP, allowing San Diego’sexporters to lower their relative price and expand their market share.
OLS
probittariff rate
-2,270,006-0.045(1,247,699*)(0.014***)
Observations
110
110
Standard errors in parentheses
Statistical significance: * 10%; ** 5%; *** 1%
Probit: marginal effect
Table 10: Influence of TPP members’ tariffs on San Diego’s exports
Tariffs are more than a financial nuisance to San Diego firms, as the data show clearly that thesize of the tariff barriers has a direct effect on the volume of San Diego exports. In a regression of
the value of exports from San Diego to each partner in each sub-sector on the maximum
tariff applicable in the sector, a 1% increase in the tariff level is associated with $2.3 million
lower export volumes, and the relationship is statistically significant.
The maximum tariff rate also matters for San Diego firms’ decision to enter
these markets. In a probit regression of the entry decision on the maximum tariff rate,
the marginal effect of a 1% increase in the maximum tariff is to reduce the likelihood thatany San Diego firms export in the sub- sector by 4.5%, and this is also very statisticallysignificant.

2.3

Broader Benefits of the TPP for San Diego

HS code854231870829392690901890732690852872840820853890854121870899

AUS
0
0
0
0
100
0
0
0
0
0

CHL
0
0
0
63.8
0
0
0
0
0
0

JPN
0
0
0
0
122
0
0
0
0
0

MYS
0
0
5.7
73.3
103
68.2
0
15.3
0.2
48.3

MEX
0
0
34.4
74.9
113
0
0
0
0
65.6

NZL
0
0
0
0
0
0
0
0
37.4
0

PER
0
0
0
58.4
116
82.2
0
0
0
0

SGP
0
0
16.6
68.1
80.4
35.7
0
5.7
0.4
0.9

USA
0
0
17.5
0
0
0
0
0
0
74.3

Table 11: TPP Ad Valorem Tariff equivalents (%) to Non-Tariff Barriers for San Diego’s
top 10 Export Sectors
12

A distinctive feature of the TPP agreement is the emphasis it places on removing NonTariff Barriers, such as technical barriers to trade. Table 11 reports estimates from Kee etal. (2009) of ad valorem tariff equivalents to non-tariff barriers, for San Diego’s ten largest
HS6 sub-sectors for 201213. Comparing Tables 9 and 11, non-tariff barriers currently
constitute a major impediment to trade, including partners which maintain very low
formal tariff rates. It is clear that even a partial liberalization could contribute to a substantial
reduction in trade costs, and strong growth in San Diego’s export sectors.
MSA
New York-Newark-Jersey City
Los Angeles-Long Beach-Anaheim
Chicago-Naperville-Elgin
Dallas-Fort Worth-Arlington
Houston-The Woodlands-Sugar Land
Philadelphia-Camden-Wilmington
Washington-Arlington-Alexandria
Miami-Fort Lauderdale-West Palm Beach
Atlanta-Sandy Springs-Roswell
Boston-Cambridge-Newton
San Francisco-Oakland-Hayward
Phoenix-Mesa-Scottsdale
Riverside-San Bernardino-Ontario
Detroit-Warren-Dearborn
Seattle-Tacoma-Bellevue
Minneapolis-St. Paul-Bloomington
San Diego-Carlsbad-San Marcos
Tampa-St. Petersburg-Clearwater
St. Louis
Baltimore-Columbia-Towson

population
20,002,086
13,175,849
9,544,796
6,823,113
6,333,809
6,036,228
5,967,176
5,863,458
5,525,432
4,698,049
4,529,654
4,404,129
4,390,262
4,295,394
3,613,621
3,461,434
3,222,558
3,121,854
2,801,587
2,774,050

patents
7,886
6,271
3,766
2,922
2,655
2,630
2,152
1,363
2,232
5,610
8,721
1,543
463
3,000
4,364
3,445
4,805
596
850
786

patents/1000
0.394
0.476
0.395
0.429
0.419
0.436
0.361
0.232
0.404
1.194
1.925
0.35
0.105
0.698
1.208
0.995
1.491
0.191
0.303
0.283

Table 12: Patents and Patents/1000 people for the 20 largest MSAs, 2013
Another important goal of the TPP is to reinforce intellectual property rights
throughout the area. This could be of great value to San Diego, which is a major hub ofresearch and innovation in the US.
Strengthening the intellectual property rights of US inventors through the TPP also plays to one
of San Diego’s strong comparative advantages, and could drive significant further growth in this high value
sector. With a patenting rate of 1.49 patents filed per 1000 inhabitants, inventors resident
in San Diego had the second highest rate of patenting in the 20 largest urban
conglomerations in America, only behind San Francisco. (Table 12 reports the number ofpatents registered to an inventor based in the 20 largest Metropolitan Statistical Areas in2013.) This is not an artefact of San Diego’s relatively small population. Table 13 ranks
MSAs by the number of patents registered in 2013. The San Diego MSA generated the sixth
highest number of patents, at the third highest rate per capita, behind only San Jose and San
Francisco. These very high patent rates are consistent with the high Location Quotient of San
Data is unavailable for Vietnam. Brunei and Canada were assessed as having no non-tariff barriers in these 10
sectors, and so are omitted from Table 11.
1313

Diego in Scientific research and development services, with five times as many employees inthis sector as in the US on average (see Table 4).
MSA
San Jose-Sunnyvale-Santa Clara
San Francisco-Oakland-Fremont
New York-Northern New Jersey-Long Island
Los Angeles-Long Beach-Santa Ana
Boston-Cambridge-Quincy
San Diego-Carlsbad-San Marcos
Seattle-Tacoma-Bellevue
Chicago-Joliet-Naperville
Minneapolis-St. Paul-Bloomington
Detroit-Warren-Livonia
Dallas-Fort Worth-Arlington
Austin-Round Rock-San Marcos
Houston-Sugar Land-Baytown
Philadelphia-Camden-Wilmington
Atlanta-Sandy Springs-Marietta
Washington-Arlington-Alexandria
Portland-Vancouver-Hillsboro
Phoenix-Mesa-Glendale
Rochester
Raleigh-Carypatents
12,899
8,721
7,886
6,271
5,610
4,805
4,364
3,766
3,445
3,000
2,922
2,683
2,655
2,630
2,232
2,152
1,928
1,543
1,542
1,384

Patent/1000
6.688
1.925
0.394
0.476
1.194
1.491
1.208
0.395
0.995
0.698
0.428
1.423
0.419
0.436
0.404
0.457
0.833
0.35
1.422
1.139

Table 13: Patenting for the 20 MSAs with most patents, 2013

3 Conclusion
The TPP is a very ambitious agreement, covering a diverse set of countries, andaspiring to dismantle both traditional and non-traditional trade barriers, while retaining
safeguards to cushion the burden of rapid adjustment14.
Early studies of the proposal estimate that the TPP will contribute to modest
growth in long-term US incomes and living standards, by lowering prices for US consumers
and expanding market access for the US’s most productive export industries.
San Diego appears singularly well placed to take advantage of these growth
opportunities, as both its geography, and its existing pattern of industrial specialization, willallow it to take disproportionate advantage of the opportunities that the TPP presents. San
Diego exporters already sell the vast majority of their output into TPP markets, and areduction in their trade costs would help them further expand their market share. Dismantlingnon- tariff barriers could expand market access into new product lines, even in markets
which have already lowered tariff barriers thanks to existing FTAs with the US. The
strengthening of IP rights could support strong growth in one of San Diego’s leading sectors,
Safeguards include the phased reduction of protection in strategic sectors, and the ability to reintroduce tariffs in
response to unanticipated import surges.
14
14scientific research and development.
At the same time, the potential downsides to San Diego seem very limited. The large
number of jobs in non-traded services will be insulated from competitive pressure fromlower wage economies, while households will benefit from any reductions in US prices
arising from lower import tariffs.
If implemented as planned, the TPP appears to offer prosperous potential for the San
Diego economy.

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