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Home Publications Blogs Beat the Press Celebrate: EU-US Trade Agreement Could Raise Growth by 0.03 Percentage Points!

Celebrate: EU-US Trade Agreement Could Raise Growth by 0.03 Percentage Points!

Tuesday, 09 July 2013 05:15

Nope, that is not a typo. According to a study (Table 16) cited in an NYT article on a possible trade deal between the United States and the European Union, GDP in the United States could be 0.39 percentage points higher in 2027 as a result of a trade deal. Of course this is their optimistic scenario in which most of the barriers they do not like are eliminated. In their less optimistic case, the gains would be just 0.21 percentage points by 2027, implying an increase in the annual growth rate over this period of 0.015 percentage points. The total gain in this case would be approximately equal to one month of normal growth.

Even these gains depend on the model's assumption that both the EU and U.S. sustain full employment, or at least that the level of employment is not negatively affected by jobs displaced as a result of increased trade. The model also does not include any negative impacts from increasing protectionist barriers like patents and copyrights. If the final deal ends up including stronger protections in these areas, then the resulting increase in costs to consumers can easily offset whatever gains result from reduced barriers in other sectors. 

It is unlikely that many readers will understand the limited potential benefits of a trade deal. The NYT told readers:

"a comprehensive trade and investment deal could increase the European economy by about 119 billion euros, or $150 billion a year, and the American economy by an annual $122 billion.

"Households are expected to benefit, too. An average family of four in the European Union might see an additional 545 euros in disposable income, the study found. An American family might benefit by about $841."

It did not mention that this was the study's most optimistic scenario, nor that this referred to 2027 incomes. It is unlikely that many readers have a clear expectation of income levels in 2027. Readers were also probably misled by the next line:

"'This is a once-in-a-generation prize, and we are determined to seize it, 'David Cameron, the British prime minister, said last month at a meeting with President Obama and other leaders at the Group of 8 summit meeting in Northern Ireland."

Few readers probably realized that Cameron was speaking of an increment to growth that would be too small for anyone to recognize.

Comments (4)Add Comment
Foi Gras
written by Dave, July 09, 2013 6:33
Can we buy Foi Gras from Gascogne? If so, the deal is worth it.
written by Chris Engel, July 09, 2013 11:24
These trade deals and the way they are reported in the press are always loaded up with newspeak "free trade", "new investment", "protections for businesses" but low on the nitty gritty specifics.

It's a shame there's no more big ideas, big national projects, inter-continental mobilization of the unemployed into useful productive activities.

Instead we get nonsense like this EU-US trade deal whose benefits are so tiny that you have to go 15 years into the future to produce any numbers that aren't laughable as "benefits" to this stupid agreement.

Another thing is that it's absolutely impossible to model the true effects of loosening of any markets. The French for example fought the Hollywood provision that would flood their market with nonsense to preserve their local culturally rich arts. While there could be positive, competitive effects that blow out the projected figures, the chances are there will be negative effects for local producers and the big multi-nationals will be able to leverage their scale advantage even more to squash smaller competitors.

I hope everyone's keeping their eyes on TPP. China has even begun showing willingness to phase into the agreement.

To be entirely fair...
written by JDM, July 09, 2013 12:08
Cameron does have a point: It's not often that something that ineffectual comes along.

Yet simultaneously makes some people much richer. Other wise you'd have to go in for some sort of rising tide thing, and that lifts all boats, even those horrid little undeserving boats.
Reporting is just so bad on this issue
written by Jennifer, July 09, 2013 9:07
The level of ignorance on these "trade deals" is just so depressing. Today on twitter there was actual excitement about this article among people I would generally describe as educated. People need to really think about the numbers being tossed around and what they really mean-even if those GDP numbers could be considered realistic, who is going to get that money? Oh the really big companies who are going to put it all overseas in off-shore bank accounts. Job Creators! It's just scandalous that those income numbers were tossed out there without the mention they referred to 2027, when in the article it was suggested the deal could "a shot in the arm for Europe". That expression typically means, right now-is Europe in a different time-space dimension?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.