Big Report, Little Finding: The ITC evaluates the economic impact of the TPP

May 19th, 2016 at 5:29 pm

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:

  • Increase real GDP by $42.7 billion, or 0.15 percent;
  • Increase employment the equivalent of 128,000 full-time jobs, or 0.07 percent;
  • Increase exports by $27.2 billion (1 percent) and imports by $48.9 billion (1.1 percent);
  • Have the biggest sectoral impact on agriculture and food, increasing employment in that industry by 0.5 percent;
  • Decrease employment in the manufacturing, natural resources, and energy sector by 0.2 percent

[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.

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5 comments in reply to "Big Report, Little Finding: The ITC evaluates the economic impact of the TPP"

  1. urban legend says:

    The political impact must be part of the equation, too. The question for the legislator (and candidates), especially Democrats: How much of a hit will you take to future contributions if you vote against the TPP, versus the hit for a favorable vote to public approval and vote totals that is almost guranteed to be fairly severe — and, without question, a disproportionate pain-in-the-ass? (Cf. NAFTA and the Clintons. Do you think they think it was worth all the heat they have taken over the course of 23 years for adopting it from the Bush administration?)

    President Obama really didn’t do his party a favor if he expects party members out of loyalty to sign this in an election year for his legacy. They have done little except make conclusory declarations to allay the many concerns and objections — such as which formal barriers in which countries will come down and how we can be sure they aren’t replaced by non-tariff barriers. Or why the dispute settlement mechanism involving private arbitrators ruling on laws intended to protect the people really doesn’t compromise national sovereignty. Or how the supposed labor protections will actually work to avoid throwing thousands of workers out iof their jobs due to lower wages for our trading partner. The absence of responses suggests they really don’t know.

    My sense is that applying that balance weighs strongly, for any Democrat, for a resounding “no” vote.


  2. cawley says:

    I understand that it was the ITC report that prompted this comment, however, while you do nod at the non-economic considerations, I think you perform a bit of a disservice by stopping their, rather than commenting on those aspects.

    I had the same impression after listening to the “Marketplace” piece yesterday. I had figured that was an editorial decision on their part. But this piece does the same thing.

    As urban legend notes, it is a bad deal. Unfortunately, the uninitiated will walk away from this thinking it’s neutral.


    • urban legend says:

      I didn’t say it’s a bad deal. Maybe it is, maybe it isn’t. But the administration has been unable to make a convincing case that it’s a good deal, and that means Democrats who support it will suffer. The presumption among most Democrats (and many Republicans) is that most (or all) trade agreements over the past 25 years or so — which happen to have coincided with loss of entire industries invented in the U.S. and drastic destruction of manufacturing jobs — have been bad deals that favored only the Davos-class elite. Fair or not, that’s the presumption, and it’s a giant hill to climb to convince most Americans otherwise. A big part of the public has been galvanized to dislike these deals, and there is a mini-industry of pundits, mostly on the Internet, who are ready to feed that anger. Any Democrat who votes in favor is taking a big risk with his or her political future.


  3. Stan Sorscher says:

    So, let’s look at labor rights. Malaysia’s spectacular problems with human trafficking, corruption, child labor, and generally “among the worst in the world” ranking from our State Department begs a basic question. What values are we expressing as a country by giving Malaysia preferred access to our markets through TPP? Under TPP, how will we enforce the “21st Century” provisions in TPP? If the 21st century has dozens of jungle camps wth mass graves, body parts on the ground and signs of torture, how is this century different from the 18th?

    Sander Levin’s story today about labor activists in Vietnam, who are beaten and jailed, begs the same question for President Obama. When he goes to Vietnam and Malaysia and makes the TPP an expression of our national values, how much lower can we go as a country?

    TPP is a governance document. In practical terms, TPP says that we will manage globalization in favor of companies who want to produce in Vietnam, Malaysia, and 4 other countries with documented chronic problems with human trafficking, while ignoring the interests of workers.


  4. Minnie Mouse says:

    Bragging up labor standards, environmental standards, standards for this and that in deals like the TPP is deceptive unenforcible lipstick on a pig to provide cover for a deal that is all about ISDS overriding by private arbitrators the sovereign lawmaking powers of every nation state in the deal. The deal is all about global governance from the get go and nothing else. Let no nation state dare to enforce decent standards for anything or it will be ruled a non tariff or “technical” trade barrier .


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