'More Realistic' Modelling Of TPP's Effects Predicts 450,000 US Jobs Lost, Contraction Of Economy

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'More Realistic' Modelling Of TPP's Effects Predicts 450,000 US Jobs Lost, Contraction Of Economy
Published: January 20, 2016


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Source: Tech Dirt

Last week we wrote about a World Bank report that predicted that TPP would produce negligible boosts to the economies of the US, Australia and Canada. Of course, that's just one study, and it could be argued that it might be unrepresentative, or unduly pessimistic. That makes the publication of yet more econometric modelling of what could happen particularly welcome. It comes from Jerome Capaldo and Alex Izurieta at Tufts University, and starts off by making an important point that is too often overlooked when considering other TPP predictions:

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The standard model assumes full employment and invariant income distribution, ruling out the main risks of trade and financial liberalization. Subject to these assumptions, it finds positive effects on growth. An important question, therefore, is how this conclusion changes if those assumptions are dropped.

Assuming that TPP won't change employment levels in any of the participating nations seems a stretch, not least because previous trade liberalization has caused sizable job losses, as the new study notes. At the very least, it means that those using these models to argue in favor of TPP shouldn't be making any claims about its effects on employment, since these don't exist by definition. Capaldo and Izurieta are able to look at how jobs are affected because they use a different model, which they claim is superior to the one found in most other studies:

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In this paper, we review existing projections of the TPP and propose alternative ones based on more realistic assumptions about economic adjustment and income distribution. We start from the trade projections put forward in the main existing study and explore their macroeconomic consequences using the United Nations Global Policy Model.

Most of the paper is spent taking a rather critical look at previous results, and will probably be mostly of interest to economists, especially academic ones. But the final results of the new calculation are certainly worth noting:

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Given the small changes in net exports, the resulting changes in GDP growth are mostly projected to be negligible. We present two sets of growth figures: ten-year totals, which measure the overall effect of the TPP on growth rates compared to the baseline, and annual averages, which measure the average changes in growth rates due to the TPP.

That underlines another point often missed: that the GDP growth figures quoted by politicians and TPP supporters reflect the overall effect after ten years. Here's what Capaldo and Izurieta found:

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Total ten-year changes in growth rates are projected to be below one percent, by 2025, in all regions but two. In East Asia and Latin America, GDP growth is projected to increase by 2.18 percent and 2.84 percent respectively under the TPP. By comparison, during 2005-2015, GDP in the two regions is estimated to have grown by 50 percent and 47 percent respectively. 

The US and Japan are projected to suffer net losses of GDP of 0.54 percent and 0.12 percent respectively compared to the baseline

Although those growth figures are worse than previous predictions, they confirm that TPP's impact on GDPs will be small. What's new in this paper is an estimation of the agreement's effect on jobs:

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While projected employment losses are small compared to the labor force, they clearly signal an adverse effect of liberalization not taken into account in full-employment models. In TPP countries, the largest effect will occur in the US, with approximately 450,000 jobs lost by 2025. Japan and Canada follow, with approximately 75,000 and 58,000 jobs lost respectively. The smallest loss -- approximately 5,000 jobs -- is projected to occur in New Zealand, where the increase in net exports is projected to be the largest. Overall, projected job losses in TPP countries amount to 771,000 jobs.

Also novel is the report's comments about the global effects of TPP:

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when analyzed with a model that recognizes the risks of trade liberalization, the TPP appears to only marginally change competitiveness among participating countries. Most gains are therefore obtained at the expense of non-TPP countries. 

Globally, the TPP favors competition on labor costs and remuneration of capital. Depending on the policy choices in non-TPP countries, this may accelerate the global race to the bottom, increasing downward pressure on labor incomes in a quest for ever more elusive trade gains.

Although this is just one (more) study, it does seem to confirm the more gloomy predictions for TPP. It inevitably poses a key question with yet more force: why exactly are politicians in TPP nations pushing so hard to ratify a controversial agreement that seems have few quantifiable benefits, and very considerable costs?

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