In response to a request from Congress (via statute), the U.S. International Trade Commission has issued its second report on the Economic Impact of Trade Agreements Implemented Under Trade Authorities Procedures (the previous report is here). The request covered "all trade agreements with respect to which Congress has enacted an implementing bill under trade authorities procedures since January 1, 1984." Here are the agreements they looked at:
The trade agreements covered in this report include the multilateral Uruguay Round Agreements as well as 16 U.S. bilateral and regional trade agreements. In chronological order, this group of agreements encompasses U.S. bilateral trade agreements with Israel and Canada; the North American Free Trade Agreement (NAFTA) with Canada and Mexico; the multilateral Uruguay Round Agreements; U.S. bilateral agreements with Jordan, Singapore, Chile, Australia, Morocco, and Bahrain; a U.S. regional trade agreement with the Dominican Republic and five Central American countries (CAFTA-DR), including El Salvador, Honduras, Nicaragua, Guatemala, and Costa Rica; five more U.S. bilateral agreements with Oman, Peru (PTPA), Korea (KORUS), Colombia, and Panama; and the United States-Mexico-Canada Agreement (USMCA) with Canada and Mexico.
The ITC hedges a bit on what it is able to accomplish with this type of analysis:
The Commission’s quantitative estimates encompass many U.S. trade agreements and different types of economic outcomes, but they are not comprehensive. Due to limits on available data and analytic techniques, these estimates do not capture all of the economic costs or benefits of U.S. trade agreements.
With that caveat in mind, the ITC offers the following conclusions:
The Commission estimates that, to the extent quantifiable, the agreements have had a small but positive effect on the U.S. economy. In 2017 (the base year), they led to an estimated increase in U.S. real GDP of $88.8 billion (0.5 percent) and in aggregate U.S. employment of 485,000 full-time equivalent (FTE) jobs (0.3 percent), based on a model that assumes the economy is at its long-run full employment level. U.S. trade agreements have also had a positive effect on U.S. imports and exports as well, especially with U.S. FTA partners. The Commission also finds, however, that the gains in jobs were not distributed evenly, with the biggest gains in employment estimated for college-educated male workers.4 Table ES.1 summarizes the key findings from the Commission’s economy-wide analysis.
Table ES.1 Estimates from the Commission’s economic modeling of the economy-wide effects of U.S. trade agreements
The Commission’s estimates for the U.S. economy are reported using 2017 as the base year. FTE = full-time equivalent
Beyond these figures, the report also provides some useful case studies and other very helpful analysis of trade agreements.
The "additional views" of Jason Kearns, the current Chair of the ITC, are interesting as well:
Additional Views of Chair Jason E. Kearns
In my view, this report provides many valuable insights into the impact of U.S. trade agreements, and my hope is that it gains a wide audience. However, the techniques used to evaluate such agreements are still evolving, and I believe the trade community needs to fundamentally rethink how to assess the impact of trade agreements on U.S. workers, businesses, and farmers. We need to ask more and different questions, question our assumptions, and dig deeper into the substantive terms of our trade agreements.
In this report, the quantitative economy-wide model focuses mainly on the long-run efficiency gains resulting from lower prices of imported goods, and relies on unrealistic assumptions about the economy, such as the assumptions of full employment (which implies that all workers seeking jobs are employed and that trade agreements cannot cause unemployment) and costless switching (that workers have the ability to freely move across industries and occupations). This contrasts with some recent academic studies that highlight how significant the transition costs are for U.S. workers and how long the transition can be after a wave of import competition. It is critical to see how our conclusions would change with a shorter-term analysis that incorporates these features. Supporters of trade agreements argue they create jobs; opponents argue they cost jobs. That has been the key issue in the debate over trade agreements for decades. Economic models cannot simply assume away the issue; more needs to be done to shed light on that debate.984
Furthermore, our modeling approach has been adapted from a time when removing or reducing tariffs and nontariff barriers was the focus of trade agreements. But trade agreements today do not simply reduce or eliminate (“liberalize”) trade barriers and expand trade, and not every domestic rule or regulation should be viewed as an “unnecessary obstacle to trade.” Trade policymakers today are often just as interested in negotiating provisions that require trading partners to adopt and implement rules and regulations concerning, for example, intellectual property rights, consumer protections on the internet, labor standards, and environmental protections.985
All of these rules can create winners and losers in our economy. But the distributional effects of trade agreements are not fully accounted for in most models,986 particularly when economies are not fully employed (and economies are rarely fully employed). I am encouraged that we are beginning to tackle the unequal economic outcomes of trade agreements across gender and other dimensions in this study. But as a result of the unrealistic assumptions in the economy-wide modeling, this report improbably concludes that all demographic subgroups (“labor types”) analyzed gained from trade agreements.
Economists’ default perceptions about what trade agreements actually do (and do not do) has likely slowed the development of alternative tools. Though this is changing, the broader profession has been slow to realize, for example, that not all labor or environmental provisions are created equal. The absence of strong and enforceable provisions in these areas has a significant impact on trade and can impact the U.S. economy in other ways. Under NAFTA, the ever-present threat of offshoring production to Mexico in the absence of enforceable labor provisions combined with tariff reductions on Mexican imports likely weakened U.S. manufacturing workers’ ability to bargain for higher wages; but standard models cannot account for that. As labor and environmental provisions themselves evolve, it will be increasingly untenable to ignore what these provisions actually obligate FTA members to do, in addition to how well these provisions are enforced.
Finally, too often, economic analysis of provisions in our trade agreements focuses too narrowly on the quantifiable expansion in trade, as if trade expansion is an end in itself, rather than a means to achieve the broader objectives articulated in our trade agreements, such as higher standards of living. While the impacts of trade agreements on things like living standards are harder to measure, doing so should be our goal.
The Commission is working to address these gaps, especially by incorporating standalone models, including “partial equilibrium” models, which speak to the relevant industry- and provision-specific questions that policymakers may have, as well as through qualitative analysis. I believe this report contributes meaningfully to the ongoing conversation about the impact of trade and trade agreements and positions the Commission to continue to innovate to address those questions.
As a general matter, I am sympathetic to critiques of the existing approach to economic modeling of trade agreements. And I worry that people make too much of the statistics generated by these studies, as the estimates are much rougher than the precision of the numbers suggests.
However, I would raise different concerns about these sorts of studies and make different suggestions for how to rethink the approach (this is more about the Congressional request than it is about the ITC's report). For example, it seems like these studies take existing tariffs as the natural state of things, and then put any deviation from that norm via trade liberalization on trial, by measuring the costs and the benefits from the liberalization that occurs through a trade agreement. Even if the benefits outweigh the costs overall, critics will then point to the costs and highlight that impact.
But I would frame the analysis differently. I would first look at the tariffs themselves and consider their impact (including distributional consequences, racial and gender impact, and the effect on our political system). Then I would consider the impact of how trade agreements alter the status quo. Basically, we should be looking at U.S. trade policy more broadly, rather than just offering a verdict on trade agreements. It's important to consider the impact of trade agreements, of course, but we shouldn't be looking at them without the proper context. Trade agreements have become such a focus of the trade policy debate that I think people have, to some extent, forgotten why we started doing trade agreements in the first place, which was to rein in the harm of tariffs -- which has both an economic and a political component -- and other forms of protectionism. Trump reminded us of that a bit, but there is still too little attention paid to the core problem of protectionism in U.S. trade policy.
Beyond tariffs, it's difficult to quantify any of the issues covered by trade agreements. I've seen people try, and I appreciate their hard work, but I think we have a long way to go. Buy America procurement and local content requirements are pretty tough to model; and provisions dealing with domestic regulation, such as IP, digital trade, or the environment, are probably close to impossible to model in an effective way. I mentioned the case studies, though, and perhaps that's a better approach to these issues. Maybe do more of that and less modelling. When I read the ITC report, I focused on the KORUS auto safety standards case study, because it's something I've written about, and this conclusion struck me as a sensible one: "The more recent renegotiation in 2018 increased this vehicle allowance to 50,000 vehicles per company, but the impact of that is unclear." With many of the issues covered by trade agreements, "the impact is unclear" is probably a safe assessment. It's still worth trying to do that assessment, but qualitative analysis may be all that we can really do here. By doing this analysis, we will, over time, understand more about the impact of specific provisions, and can learn from that experience.
