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Home Publications Blogs Beat the Press David Ignatius Is Wrong: Trade Agreements are Not About Free Trade

David Ignatius Is Wrong: Trade Agreements are Not About Free Trade

Friday, 04 April 2014 04:16

David Ignatius' column in the Washington Post touting the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP) is badly mistaken in connecting these deals with free trade. The agreements have very little to do with free trade, rather they are about imposing a business-friendly regulatory structure that would almost certainly not be approved through the normal democratic process in the countries that are parties to the deal.

The reality is that formal trade barriers between the countries in these pacts are already very low. This means the potential gains from further reducing the barriers are quite limited. While Ignatius wants readers to be impressed that one forecast projects the TPP would add $223 billion to world GDP by 2025, this is less than one quarter of one percent of projected GDP in that year. That makes it roughly equal to how much the economy grows in a month. Furthermore, this projection takes no account of aspects of the TTP that would almost certainly slow growth, such as the increase in drug prices that would result from stronger patent related protections.

Ignatius also tells readers that the forecast shows the deal will "boost U.S. exports by $124 billion. That means jobs, here and abroad." This is not true. Many of the exports that will likely result from this sort of deal take the form of exporting components of products to be assembled outside of the country to take advantage of lower cost labor elsewhere. For example, engines and other car parts that may previously have been assembled in Ohio will instead be exported to Mexico to be assembled there into a car. The car will then be brought back to the United States as an import.

In this case the exports created no new jobs, since all of the products exported were already being produced in the United States. This is why economists always talk about net exports (exports minus imports) when discussing the job impact of trade. Currently the United States imports roughly $500 billion a year (@ 3 percent of GDP) more than it exports. Assuming a multiplier of 1.5, this trade deficit implies a loss of more than 6 million jobs.

In addition to increasing protection for prescription drugs, the deal is also likely to lead to longer copyright protection, more government control over the Internet and could sharply restrict environmental and safety standards in many areas. In addition, these agreements will create a legal structure, investor-state dispute settlement, that over-rides domestic legal systems. There is an arguable case for such extra-judicial entities in countries without well-established judicial systems. It is far more difficult to argue for the need such a system in the European Union, Canada, and the United States, where businesses can generally count on their interests being treated fairly in the courts.   


Comments (7)Add Comment
Lightweight America Endorses Global Economic Predators
written by Last Mover, April 04, 2014 5:38

The good news is a couple of miserable well known "professional journalists" were outed for who they really are on this and similar economic issues:


I’m clearly too feral to have the proper responses, but I’ve long considered Cokie Roberts to be too lightweight to be worth paying attention to. But since lightweight goes over well in many parts of America, Cokie still has a large following. And it’s separately worth paying attention to a fight she picked over Obama’s stalled trade deal, the TransPacific Partnership. The fact that people with popular followings are still defending it says the Administration remains keen to revive it, so opponents need to guard against becoming too complacent.

The specifics: Cokie and her husband, Steve, went after Florida representative Alan Grayson in January in a syndicated column over his stance against the TransPacific Partnership. The piece was a collection of tired bromides and cherry-picked factoids about supposed virtues “free trade,” when many commentators, including your humble blogger, have explained that this proposed pact (and its evil twin, the Transatlantic Trade and Investment Partnership) can’t properly be considered trade deals, since trade is already substantially liberalized. Instead, their real purpose is to further enrich US multinationals by strengthening already-too-generous intellectual property protections and ceding even more power to secret tribunals that allow foreign investors to sue governments for potential profits they claim to have lost due to regulations. Experts have already said, for instance, that the generally weak Dodd Frank regulations could be torn down through this process.

Global neo-fascism in action, entire governments subsumed by private corporate power to do their bidding to undermine free trade.
written by Robert Sadin, April 04, 2014 8:03
Dean has been great on TPP. Also Stiglitz and Yves Smith.

But why the free pass given to Krugman. His evasions and misrepresentations on this have been astounding.

But Dean won't call him out.

Krugman's platform is very important. He should not be allowed to avoid the implications of TPP and the Obama administration's role.

On this issue, he deserves the same uncompromising treatment as Ignatius.
written by Larry Signor, April 04, 2014 10:26
Ignatius cites such economic powerhouses as: Mexico(1.177t GDP), Canada(1.821t GDP), Australia(1.542t GDP), Japan(5.960t GDP), oh, and the US(16.245t GDP). He does not mention the rest of the gang: Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam(combined GDP~1.47t). (IMF 2012)http://en.wikipedia.org/wiki/I...etary_Fund

Now the math: Total TPP GDP 2012: 28.133t. Ignatius sends us here: "According to the trade representative’s office, an agreement could add $223 billion to global income by 2025..."

Now the ugly math: 2025 global income growth attributed to TPP/TPP GDP 2012=0.828% of 2012 TPP GDP. ~55% would be US economic growth, in 13 years...with an inflation target of 2% this growth becomes time discounted by 15-20%. The picture only looks worse as a % of projected GDP. Big numbers, but when put into context, just not much there economically.
Robert Sadin: Baker did call Krugman out, who responded
written by jaaaaayceeeee, April 04, 2014 12:53

Dean did call Krugman out, and Krugman responded, twice, contrary to your complaints. Many powerfully backed hacks, claim Krugman is the height of dumb liberal economists (tax 'n spend), avoids the tough issues (austerity for thee, not me), and Mr. Evasion or Misrepresentation, with whom I doubt you agree.

Krugman has agreed with Dean Baker's point that, " ... the TPP is not really about trade", and said he thinks he agrees that, "it's about changing the regulatory process in ways that would almost certainly be opposed by the people in most of the countries included in the deal", with a promise to study/write more. http://krugman.blogs.nytimes.c...rief-note/

Krugman has also announced his appointment to CUNY's Luxembourg Income Study Center in 2015.

The real problem is that with 6 media companies gating 90% of the news voters get, instead of the 160 newspapers we had 30 years ago, Dean Baker and Yves Smith aren't top columnists in mainstream news (not that Krugman is mis-using his nytimes megaphone).
written by Bart, April 04, 2014 5:17

But Dean, $223 billion is a very large number: $223,000,000,000!

Cokie was the coiner of the phrase, "It's out there" meaning that saying something outragious or untruthful will get your words engraved on the Internet, read by all and sundry, and done by here by the coiner herself.

written by John, April 05, 2014 4:30
On the contrary, barriers to trade are still huge and play a significant part in business decision making. It is not clear why economists and some journalists continue this misinformation. Importing things into Europe get slapped with enormous tariffs at the border. Depending on the import, items get the red tape treatment behind the border adding significant costs to items.

If anyone is interested into looking into trade barrier problems they should study how Tesla imports cars into Europe. Vested interested groups put all sorts of barriers in place to block imports.

Hopefully, we can get more honest reporting on this important topic.

Dean makes the false point American, Canadian and European courts will help in remedying trade disputes. Local courts, especially here in Europe, are nationalistic in nature and are more inclined to back locals over foreigners. Tribunals may or may not be the best choice but relying on local courts to resolve international trade is fraught with huge bias towards the locals. That is just a fact of life in many countries that are so concerned with cultural identity (I.e. France)
No need to lower standards
written by Andy, April 10, 2014 9:47
The US are free to adapt to EU standards and rules, no need for TTIP. In many cases the EU rules are more advanced, not only in the area of food safety. Instead of reforming their own food sanity standards from the 1950ths they ask us to lower our standards to make our consumers accept their chlorinated chickens and other goodies. Our EU level rules work as an umbrella for 28 sovereign nations, as diverse as it may get, often EU harmonisation is the lowest common denominator. Why should a single nation with a smaller market get its extra deal? What has the US to offer? To abandon Buy America? To terminate their unlawful business espionage and mass surveillance against their allies? That would be a weak start into true free trade.

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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.