The TPP and the Bicycle Theory of Trade

I am having a hard time making up my mind about economic pluses and minuses of the Trans-Pacific Partnership (TPP), the pending trade deal that will deepen economies ties between the United States, Japan and 10 other Asia-Pacific nations. Nick Martin, a cycle shop owner in Colorado who has been made a poster child for the deal by the White House, has shown me why.

I love cycling, but I especially love bicycles. My wife and I spent our honeymoon touring Europe on bikes. I ride to work as much as I can. To my mind the bicycle is the most nearly perfect of inventions, one that multiplies the efficiency of purely human energy. Bikes are also beautiful objects--if I didn’t ride mine all the time, I’d hang it Seinfeld-style on the wall.

I am especially proud of my road bike, a Cannondale aluminum-framed bicycle that proudly carries a “Made in the USA” logo. The bikes are assembled in a small factory in Bedford, Pennsylvania. Or at least they were assembled in Bedford. Last year, Cannondale shut down the plant, which was its last in the United States, and moved the remaining production to China and Taiwan.

Today, there is almost no bike production left in the United States. Trek, the Wisconsin-based company, does have two factories in its home state that build the highest-end carbon frame bikes that can cost in the thousands of dollars. But all the rest of its production is offshore.

The National Bicycle Dealers Association says that about 99 percent of bicycles sold in the United States in 2013 were imported, mostly from China and Taiwan. While there are still dozens of very small, specialized bike makers in the United States, total domestic production in 2013 was about 56,000 bikes, compared with 16.2 million imports.

Enter Nick Martin. The White House--eager to build support in Congress for the controversial TPP deal--last week shared an email from Mr. Martin, in which he identifies himself as “a cyclist and the proud co-owner of The Pro’s Closet.” Mr. Martin is an enthusiastic proponent of the TPP, arguing that it will open large new international markets for his product. Excellent, I thought. A new, start-up bike manufacturer poised to sell into global markets. Exactly the revival of American manufacturing that we’ve been hearing so much about.

Indeed, there have been some encouraging recent developments. The Bicycle Corporation of America, a New Jersey company that hasn't made a bike in the United States since 1990, announced last November that it would open a new factory in South Carolina. The key was a decision by Wal-Mart, the world's largest retailer which has been criticized for its reliance on Chinese imports, to increase it purchases of U.S.-made goods by $250 billion over the next decade. These will be the first U.S.-assembled bikes sold by Wal-Mart in more than a decade.

I had assumed that the White House was championing another "made in America" success story. Only on a closer read, Mr. Martin’s company does not actually make bikes. It does not make components for bikes. It doesn’t make gear or clothing for cyclists. What it does is to sell used bicycles and equipment over the Internet, using eBay and other e-commerce platforms. The TPP, which would include new rules on digital trade and would further lower tariffs, should help him find new overseas buyers. “International customers aren’t just good for business abroad; they’re great for my Colorado communities,” he wrote. “Why? Because selling in more markets means I can hire more people here at home.”

There is much to admire in Mr. Martin’s business. Like many American companies, he has found innovative ways to create new markets where none existed before. Buying or selling a used bicycle once meant putting an ad in your local newspaper; The Pro’s Closet takes in bikes from everywhere--including the leftovers from professional cycling teams--and resells them online, taking a cut of the profits. More than half its customers are international. It’s also environmentally friendly (“Buy something that already exists,” the company says. “It’s the greenest way to go”). While I haven’t seen any stats on it, I’m sure that fewer bicycles are ending up in the landfill these days simply because there are more ways than ever before to find a buyer for your old bike.

All the same, compared to actually making new bicycles, the economic potential of the internet resale business would seem to be rather limited. Even today, Trek says it still employs nearly 1,000 people in the United States, about half of those in manufacturing. Bicycle Corporation's new South Carolina factory has hired 75 new workers, though at very modest wages, and its goal is 200 in four years.  The Pro’s Closet currently employs just thirty.

This is part of what trade does of course--it creates enormous economic churn. It has become cheaper to make many things, and especially commodity products like all but the highest-end bicycles, in lower wage countries. That’s great for consumers, and for retailers – there are four bike shops right in my neighborhood that probably wouldn’t be there if they couldn’t sell the cheaper imports. Rich countries like the United States have to find new ways to adapt and prosper despite the loss of that manufacturing work. Mr. Martin’s business is doing that, and the TPP will undoubtedly help not only his company but other small online retailers as well, creating new jobs and new opportunities in this country. And TPP or no TPP, the United States is not about to re-emerge as a big manufacturer of bicycles – the economics simply don’t work.

But I must admit to a bit of nostalgia for what has been lost as the world economy grows ever more competitive, a trend that the TPP will only accelerate. I admire Mr. Martin’s entrepreneurial energy, and hope he succeeds wildly. But I am going to hang on to my Made in the USA Cannondale until one of us breaks down.