June 01, 2017
The Washington Post shamelessly uses both its news and opinion pages to push trade agreements. It famously even lied about Mexico’s GDP growth to tout the benefits of NAFTA, absurdly claiming it had quadrupled between 1987 and 2007 (the actual figure was 83 percent, according to the International Monetary Fund).
Given this background, it’s not surprising to see a piece that bemoaned the fact that Vietnam will not be able to get the large gains from the Trans-Pacific Partnership (TPP) projected for it in several models:
“Economists say Vietnam would have been one of the biggest winners of the deal. A 2016 study by the Peterson Institute of International Economics found that the Obama-era trade deal would have increased Vietnam’s gross domestic product by 8.1 percent by 2030, the most of any country in the deal, and expanded its exports by nearly a third. Economists expected the deal to expand access to foreign markets for Vietnamese producers of apparel, footwear and seafood, as well as stimulate economic reforms within the country.”
While many readers may see the rejection of the TPP by Trump (and likely Congress as well) as a serious misfortune for Vietnam, the good news is that the vast majority of the projected gains for Vietnam came from the reduction or removal of its own tariffs. This is something that the country can, in principle, do tomorrow if it wants those big 8.1 percent gains promised by the model cited.
Furthermore, Vietnam will not have to pay the higher prices for drugs and other items subject to longer and stronger patent and related protections as a result of the TPP. The model cited by the Post forgot to include the impact of the increase in these protections on economic growth. While most of the tariffs being reduced as a result of the TPP were already low, patent and copyright protections often raise the price of the protected items by several thousand percent above the free market price.
The other point worth mentioning is that the computable general equilibrium (CGE) models, like the one used to give this projection of gains for Vietnam from the TPP, have a horrible track record. In the case of the U.S. trade deal with Korea, the version of this model used by the United States International Trade Commission not only failed to predict the explosion in the U.S. trade deficit with Korea which followed the implementation of the deal, its prediction of the industries that would gain or lose from the pact had basically zero correlation with what actually happened.
In other words, there is little reason for Vietnam to spend time worrying about the projections from the CGE models showing it suffered as a result of the TPP’s demise. Of course, the models can be useful for advancing a political agenda.
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