November 30, 2016
Washington D.C. – Although the Trans-Pacific Partnership (TPP) may no longer have a viable path to becoming law,having accurate methods of assessing of trade policy is critical to understanding the full impact of trade deals. The United States International Trade Commission (ITC) provides comprehensive reports on the impact of trade agreements – it’s most recent report provided an assessment of the Trans-Pacific Partnership. In his analysis of its report on the TPP, Dean Baker, Economist and Co-Director of the Center for Economic and Policy Research (CEPR), noted several ways in which the ITC’s report and other recent analyses inadequately captured the impact of the TPP and other trade deals.
Baker examined first, the potential losses associated with workers being displaced from jobs and being unable to find new employment; second, the potential impact of large increases in the trade deficit that could result if one or more of the parties to the TPP adopted a policy of managing its currency so as to sustain a large trade surplus; and third, the potential impact from a substantial increase in payments from TPP partners for patents, royalties, and licensing fees to U.S. firms as a result of the stronger intellectual property provisions in the pact. None of the three issues are considered in the ITC study.
The projections from the ITC indicate that the TPP would have led to modest overall gains for the economy. According to the ITC projection, the economy would be roughly the same size on January 1, 2032, as it would be one and a half months later in the same year (February 14, 2032) without the TPP. However, several of the factors excluded from the analysis indicate that these gains could be even smaller than the report indicated and quite possibly negative. Furthermore, given the limited aggregate gains, it is entirely possible that the deal would have been a net negative for a large majority of the country’s workers.
For example, the change in the incentive structure created by the TPP would have resulted in weaker regulation in a number of areas. If it prevented regulations where the benefits outweighed the costs, then the economic losses from this effect of the TPP would have been substantial.
Baker explained, “It’s important to look carefully at the models that are used in evaluating trade agreements. The patterns of trade following past trade deals have shown us that these models have a very poor track record in predicting outcomes, as was clearly the case with both NAFTA and KORUS.”
While the ITC assessment is useful, it at best provided a very limited picture of the likely effects of the TPP and failed to accurately show the impacts of past trade policies.