Comment on the
Congressional Research Service Report
“Trans-Pacific Partnership (TPP):
Analysis of Economic Studies”
Jeronim Capaldo and Alex Izurieta
A report by the United States Congressional Research Service (CRS) expresses concern about the motivation and relevance of our macroeconomic analysis of the Trans-Pacific Partnership (TPP), “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement.” In this GDAE Globalization Commentary we explain why such concerns are misplaced and should be addressed to the traditional analyses we depart from.
While acknowledging some important features of our analysis, the author of the report believes that we do not adequately justify our departure from standard trade theory. In fact, this is an extraordinary reversal of the burden of proof: justification should be expected of traditional analyses that assume away problems such as unemployment, inequality, monopoly power, financial imbalances or unsustainable trade deficits. A review of the main features of standard models clearly shows that they are built to deliver positive projections following any form of liberalization thanks to unrealistic assumptions and simplifications. As in other cases, these simplifications make TPP appear risk-free but they also make projections uninformative. In opting to use the United Nations Global Policy. Model (GPM) we reject those simplifications with the intention of providing a useful analysis of TPP’s macroeconomic impact.
As is clarified in our paper, in the technical documentation of the model and subsequent writing (none of which is cited in the CRS report), the GPM does not provide detailed trade projections. For this reason, we refer to the trade projections provided in the main traditional analysis of TPP and ask ourselves what changes would have to occur in the world economy if those projections were correct. The adjustments we foresee are largely detrimental to employment, income distribution and economic stability.
Since TPP is not only concerned with cutting tariffs, the fact that we do not produce our own trade projections does not make our macroeconomic analysis less relevant. In fact, as the United States International Trade Commission has pointed out, most of the growth projected by TPP advocates comes from “non-trade measures”. Experience with previous agreements suggests that such measures can negatively affect income distribution arguing strongly in favor of using a model, such as the GPM, that reflects this effect.
In our response to the CRS paper we focus on the main features of standard trade models to highlight why these models do not provide a useful framework for analyzing TPP. To the extent that the TPP involves aspects of the economy where the GPM has analytical advantages, such as impacts on employment and income distribution, our analysis provides a relevant macroeconomic perspective that standard trade models are blind to.
About the U.N. Global Policy Model:
Documentation of the model, which is housed at the U.N. Commission for Trade and Development, is available in the following UNCTAD paper:
"The UN Global Policy Model: Technical Description," by Francis Cripps and Alex Izurieta, May 2014.
Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement, Jeronim Capaldo, Alex Izurieta, and Jomo Kwame Sundaram, GDAE Working Paper 16-01, January 2016
The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability, Jeronim Capaldo, GDAE Working Paper 14-03, October 2014
Read more on Modeling Policy Reform
Read more on Reforming U.S. Trade Policy
Read more from GDAE’s Globalization and Sustainable Development Program
The Global Development and Environment Institute’s Globalization and Sustainable Development Program examines the economic, social and environmental impacts of economic integration in developing countries, with a particular emphasis on the WTO and NAFTA's lessons for trade and development policy. The goal of the program is to identify policies and international agreements that foster sustainable development.