Are Trade Agreements Good For You

Over the past two decades, the number of trade agreements has increased. Economists have studied in detail the economic consequences of these agreements, focusing on their impact on variables such as trade flows, productivity, exit and entry, employment and wages (e.g. B Pavcnik 2002, Trefler 2004, Baier and Bergstrand 2007, Topalova and Khandelwal 2012). We note that the cumulative decline in IPV over the 1993-2013 period, due to trade agreements, was 0.24% in our baseline estimate. Of this overall effect, we account for about 55% of the direct impact on the prices and quality of imported products. The remaining 45% is due to lower input prices, adjusted for quality, which reduces the prices of domestic products. Although this is not a major effect, it represents a considerable saving for EU consumers, around EUR 24 billion per year. Jeff says that “the effects of trade agreements are extraordinarily weak, but positive, because trade pacts ultimately create better, higher-paying jobs than displaced ones.” But he is wrong on both points. Trade agreements have cost both jobs and pushed workers to lower wages.

Over the past 20 years, trade and investment agreements have widened U.S. trade deficits and cost Americans jobs. The agreement, which introduced China to the World Trade Organization, resulted in trade deficits that, between 2001 and 2013, eliminated 3.2 million jobs. Meanwhile, the United States is already in a trade deficit with the countries of the proposed Trans-Pacific Partnership, which cost the United States 2 million jobs in 2015, a trade deficit that would only worsen the implementation of the pact. But lost jobs are only the tip of the iceberg of trade, which has a wider impact on the economy. The fundamental error in Rob`s analysis is the assumption that trade deficits increase total unemployment in the United States. Over the past 25 years, we have implemented a large number of trade agreements. During this period, the U.S. trade deficit generally fluctuated in line with the U.S. economic performance. The deficit increases when times are good and contract when the economy slows.

The simple answer is that Rob makes real problems, but misdiagnosed the causes. As I said, the source of many pressures on the U.S. labour market is a combination of technological advances and underinvestment in the United States.

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