How Not to Use the International Trade Commission’s Economic Analysis of Trade Agreements
The Trans-Pacific Partnership (TPP) has been concluded and is pending approval by the 12 member nations. Negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States are continuing. Whether the public and policymakers are supportive of these agreements will depend in part on the economic results they are expected to deliver. Estimated economic effects depend heavily on the type of model used and the assumptions that constrain it. Interested parties often tend to cherry-pick the study results that best support their own policy positions, which leads to conflicting claims and a great deal of public confusion and doubt about trade agreements.
Sound economic analysis of trade agreements is important. Policymakers need to understand the likely costs and benefits of trade liberalization in order to focus on sectors that would be most affected by reform. Public support for trade agreements depends at least in part on the expectation that the U.S. and global economies will tend to grow when trade restrictions are reduced. Credible assessments of the likely economic effects of recent trade agreements have shown results consistent with economic theory — policy liberalization leads to increased economic activity and expanded trade.
Nonetheless, critics opposed to further reductions in U.S. trade barriers often claim that past trade agreements haven’t delivered the results that were expected. They point to numbers reflecting imports, exports, or the trade balance to illustrate their view that earlier economic analysis was flawed. “Since past agreements haven’t worked out as promised,” they say, “why should we support any future trade deals?”
This trade-skeptical attitude reflects several realities. One is that some people opposed to trade liberalization seem willing to offer any argument that might derail steps toward enhanced global economic integration. Another is that quantitative analysis of the effects of trade agreements has become more difficult as the pacts have expanded beyond tariff reductions and into reforms of domestic policies relating to investments and services. One more reality (and the topic of this paper) is that some people misunderstand — whether intentionally or not — the methodology used by the U.S. International Trade Commission (ITC) to prepare official estimates of U.S. trade agreements, which leads them to misinterpret what the numbers actually mean.