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

Print
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.