The U.S. International Trade Commission (ITC) is required by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 to prepare estimates of the economic effects of trade agreements. In specific:
“Not later than 105 calendar days after the President enters into a trade agreement under section 103(B), the Commission shall submit to the President and Congress a report assessing the likely impact of the agreement on the United States economy as a whole and on specific industry sectors, including the impact the agreement will have on the gross domestic product, exports and imports, aggregate employment and employment opportunities, the production, employment, and competitive position of industries likely to be significantly affected by the agreement, and the interests of United States consumers.”
This statutory language guided the ITC’s analysis of the twelve-nation Trans-Pacific Partnership (TPP). The ITC study was released on May 18, 2016.
It had been several years since the United States concluded a free trade agreement. The previous one with South Korea (Korea-U.S. Free Trade Agreement, or KORUS) dates from 2007. I served as chairman of the ITC at the time and am quite familiar with the KORUS study. The econometric modeling used a “comparative static” analysis. A comparative static approach can be likened to taking two snapshots of the economy. The first photo was of the known baseline economy as it existed in 2007. The second photo also used the 2007 baseline, but this time it was “shocked” by incorporating all provisions of KORUS as if they had been fully implemented. This allowed a conceptually sound – albeit counterfactual – assessment of the likely economic effects of KORUS by analyzing how those reforms would have influenced the 2007 economy. (These issues are explained in this Free Trade Bulletin.) Static modeling has been used in all the ITC’s analyses of trade agreements prior to TPP.