How Third Way Trade Agreements Study Distorts Via Omission to Pave Way for TTP and TTIP

By Kenneth Thomas. Originally published at Angry Bear

Third Way (h/t TPM), a Democratic pro-trade think tank, has released a new study, “Are Modern Trade Deals Working?” It examines the various “free trade” deals the U.S. has signed since 2000 to conclude that 13 of 17 have led to an improvement in our goods (not including services; see more below) trade balance with the countries involved, giving a net improvement over the 17 agreements studied of $30.2 billion per year.

I did a similar analysis of this very question (though in less detail than the Third Way study) in 2012. Unlike the Third Way report, my post included all U.S. free trade agreements (rather than starting in 2001 like Third Way) as well as the effect of the 2000 agreement for Permanent Normalized Trade Relations (PNTR) with China. So, compared to the Third Way study, my post includes the FTAs with Israel, Canada, and Mexico, but did not consider the Panama FTA, which had not yet come into effect when I posted. My conclusion was essentially the same as Third Way’s, that the effects of the agreements on our trade in goods were usually positive, but of small size (the effect of the Israel FTA was also small). Because the Third Way study begins in 2001, however, it omits the impacts of NAFTA and PNTR with China. However, as my post showed, they are the most important by far.

This fact is not lost on opponents of the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Lori Wallach of Public Citizen Global Trade Watch told the Associated Press that “studies such as Third Way’s make a big deal out of modest trade improvements with countries like Panama, and gloss over huge trade deficits with major trading partners such as South Korea, Mexico and Canada.” She’s right.

In 1993, the year before NAFTA went into effect, the United States had a surplus with Mexico on trade in goods of $1.7 billion. In 1995, it went to a deficit of $15.8 billion, and in 2014 the goods trade deficit was $53.8 billion, down from 2007′s peak of $74.8 billion. This was in sharp contrast with the analysis of Gary Hufbauer and Jeffrey Schott, who predicted trade surpluses on the order of $9-12 billion through the 2000s, even as they admitted that the peso was overvalued (it collapsed in value in the December 1994 “Tequila crisis”).

Meanwhile, the balance of trade in goods with Canada went from a deficit of $10.8 billion in 1993 to $34.0 billion in 2014. Note that the U.S. had a peak deficit of $78.3 billion in 2008, which collapsed to  $21.6 billion in 2009.

In 2000, the year PNTR was adopted, the United States had an $83.9 billion goods trade deficit with China. In May of that year, the International Trade Commission (h/t David Cay Johnston) released a report estimating that the trade balance would worsen by a further $4.3 billion. According to the article, the U.S. Trade Representative and the White House both criticized this study strongly. And in fact, the 2001 deficit fell to $83.1 billion. However, in 2002 it was $103.1 billion, an increase more than four times the ITC prediction, and by 2014 it had grown to $342.6 billion.

By including trade in goods but not trade in services, Third Way is admirably the stacking the deck against its own position. It points out that the U.S. has a global surplus in trade in services of $232 billion in 2014, including a $45 billion surplus with Canada and Mexico. However, it doesn’t mention that the U.S. goods trade deficit was $737 billion in 2014, or that the country’s overall 2014 trade deficit was $505 billion, up from $477 billion in 2013.

The ultimate question is whether TPP and TTIP are going to be more like the U.S.-Australia Free Trade Agreement, or more like NAFTA and PNTR. Considering that the TPP includes all the NAFTA countries, Australia, Chile, Japan, and six others, comprising “nearly 40 percent of global GDP,” I think it’s safe to assume that it will have a much bigger impact than the FTAs with Australia or Chile, for instance. Similarly, since the European Union has an economy about the same size as the U.S. economy, I believe the TTIP will also have big consequences.

Moreover, we have to remember that these are much more than trade agreements. Both of them have increased protections for investors, patents, trademarks, and other intellectual property, and in both of them the U.S. is advocating the inclusion of investor-state dispute settlement so companies can sue governments through arbitration rather than courts, something that has proven more favorable for companies vis-a-vis both governments and consumers. So, in addition to the negative effects on U.S. workers that we would expect on the basis of the Stolper-Samuelson Theorem, all signatory countries are likely to suffer from higher prices for medicine and assaults on their regulations through investor-state dispute settlement.

Thus, while the Third Way study is right as far as it goes, what it leaves out is far more significant and worrisome.

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  1. Chauncey Gardiner

    As Rajesh Makwana yesterday noted in an article titled Beyond The Market-State: “[T]his year’s State of Power report by the Transnational Institute sums up the current situation, corporations have succeeded in replacing rule of law with Global Corporate law, using a multitude of norms, treaties and agreements – most recently the Transatlantic Trade & Investment Partnership [TTIP] – to secure their rights to profit above human rights. In short, we are witnessing a crisis of governance and democracy at all levels of society – from local municipalities and national government, all the way up to the United Nations.”

    This illegitimate transfer of power from democratic institutions to a small number of extremely wealthy individuals and large transnational banks and corporations, and the related loss of sovereign, state and local powers through an end run around nations’ monetary and regulatory powers, will likely lead not only to further impairment of democratic structures and institutions, but to further massive systemic failures such as we experienced in the financial collapse of 2008 and subsequent global economic recession, and to further environmental degradation. And the structures are being put in place so that we will all again be required to pick up the bill for their failed policies, and the transfer and concentration of wealth into their hands, one way or another.

    “Fast Track” of these so called trade agreements must be repudiated and the Supreme Court’s Citizens United decision reversed.

    1. different clue

      Pelosi supports Fast Track. (She was also an economic traitor for NAFTA against America as well).
      She is a leader of the Democratic Party which means the Democratic Party also supports Fast Track, as does its President, Party Leader Obama.

      The only hope to kill Fast Track is if enough Rebel Democrats can join enough Rebel Republicans (Tea People mainly) to repudiate their bi-Partisan Party leaderships and kill Fast Track. That will probably require a willingness to take hostages and keep shutting the government down over and over again until the bi-Partisan Party leaderships and their social class comrades in the private sector decide the price of seeking Fast Track is not worth the cost of repeated government shut-downs.

      I do not like what the Tea Party stands for, but I support their methods more and more and more, and suspect they are the only methods that will work against Fast Track. The Rebel Democrats against Free Trade Treason should join the Tea Partiers in shutting government down over and over and over again until
      Fast Track is taken off the legislative schedules. Nothing else will work in the face of scum filth like Obama, McConnell, and Pelosi.

  2. Me

    What about the impact on democracy? Look at what Montreal is going through now with fracking and the NAFTA tribunal case. The trade tribunals, the impact on public health, the protectionist patent law? What about the impact TPP like agreements have on financial and environmental regulation to go along with state sovereignty? Hell, what about the unprecedented secrecy surrounding these negotiations, the lack of transparency and the role that corporate lobbyists have in shaping the deal?

    Besides, even if there are modest gains from trade, how are the benefits spread? Do they create a more or less equitable society? Do they lead to improved living standards or increased profits and rents?

    1. susan the other

      I do believe TPP and TTIP serve to create a completely chaotic society globally because: Who can figure out which laws apply, and when they finally do, even if the “investor state” tribunals are nullified, it leaves the world begging for leadership. Free trade agreements are NOT leadership. And furthermore, if NAFTA is a legal entity for all TPP agreements, why isn’t it for all TTIP agreements? Goes to show that when it comes to another powerhouse like the EU which can enforce its social and environmental laws, all attempts to include self-interest at the corporate level are a joke. And nobody talks about these discrepancies? Amazing. It’s just smoke and mirrors. And Kleptocrats.

  3. C

    Besides, even if there are modest gains from trade, how are the benefits spread? Do they create a more or less equitable society?

    Given that inequality between people is growing both domestically and internationally I would say no. In many respects most of the U.S. gains from these “free trade deals” come in the form of stock gains with companies incereasing their profit share through the exploitation of offshoring. Thus the gains are structured to be unequal.

  4. C

    For all loyal democrats out there, and NY Times readers, it is worth pointing out that the people who run third way like Thomas Friedman are the peole that both Obama and Clinton listen to. These are the kinds of studies that they believe and thus when they say that free trade deals will benefit America, this is why they believe it.

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