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BK Blog Post
Posted by Jared Bernstein.
From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.
The International Trade Commission (ITC) just released its 792-page monster of a report on the “likely impact” of the Trans-Pacific Partnership (TPP) on the US economy. The findings are largely positive on net but tiny, which confirms two of my priors. First, I see no rational way your support or opposition to the TPP can be informed by these findings, and second, trade agreements, as opposed to trade, have little to do with US growth and jobs.
That is not, btw, meant to be a critique of the report. The fact that it shows tiny results, which I’ll get to in a moment, comports (as I said above) with my expectations of the economic impact of a trade agreement with a bunch of countries, 6 with whom we already have trade deals.
But as I’ve stressed before, it is beyond our capacity to plausibly model the impact of a complex, 6,000 page, 12-country trade deal 15 years out! Remember, we’re severely challenged trying to accurately predict GDP or jobs out one quarter or one month. And while the ITC report fails to provide confidence intervals around its estimates, they’d likely cross zero (i.e. be statistically indistinguishable from no change at all).
A bit of background. When the executive or legislative branch needs advice or technical expertise on matters of trade, they turn to the ITC. In the case of the TPP, the ITC was required to submit a report by today. Specifically, the ITC estimates that, by 2032, the TPP would:
[The report also project impacts out to 2047; again, with respect to our modelling capability, let’s not go there.]
OK, let’s wrap our head around the magnitude of these predictions. The forecast is that the TPP will boost real GDP 0.15 percent over its baseline value 15 years from now. When you back out the report’s assumed growth rates for real GDP with and without the TPP in place, you find that this is equivalent to one month of real GDP growth. That is, real GDP would hit its TPP level one month later in a world with no TPP.
Those 128,000 jobs are actually “full-time equivalents” meaning, for example, two half-time jobs count as one full-time job. One can adjust that number to be comparable to the payroll data we get each month, which boosts the ITC number to about 138,000 jobs. In other words, after 15 years, the TPP is predicted to generate what we’d call “a lousy month” for job growth.
Again, none of this means that the US should or shouldn’t sign the deal. What it does mean is that you can’t make that call based on jobs, wages, or incomes. You have to instead crack the damn thing open and decide where you stand on the dispute settlement procedures, the absence of a chapter enforcing rules against currency manipulation, the labor and environmental rights, and the drug patents and intellectual property agreements. These are the “rules of the road” I reference whenever we talk about trade deals, because for all the talk about jobs, jobs, jobs, it’s these rules by which we trade that comprise these deals.
What matters most is who’s at the table when those deals get made. I’ve stressed that this process must change to be much more inclusive, and not just on behalf of workers here, but on behalf of much less privileged workers in some of the other signatory countries.
One final point. One particularly troubling and restrictive assumption in these models is that the balance of trade—in the US case, the trade deficit as a share of GDP—is held fixed by design. Yet, one of the most impactful aspects of globalization has been the economically large trade deficits we’ve been dealing with in this country for decades. I can’t say whether the TPP would have much impact on that key variable; like I said, that’s a function of trade (and exchange rate movements, relative growth rates, central bank actions, and much more), not trade deals. But especially given the overly-optimistic record of the ITC in predicting trade balances (see this analysis by Public Citizen), this is another reason to cast a jaundiced eye on these predictions. As Congressman Sandy Levin, someone who follows these developments closely, put it: “The figures are also based on an optimistic assumption that our trading partners will open their markets to our exports, rather than simply replacing their existing tariff barriers with new non-tariff barriers, even though we have repeatedly seen that happen in the past.”
If it seems incredible to you that we’ve been intensely wrangling over this trade deal so hard for so long when these are the predicted outcomes, I urge you to expand your analytic framework. There’s geopolitics in the mix, along with powerful corporate interests pushing for market access, protected by rules they helped to write. It is on those criteria that one’s view of the deal must be formed.