The TPP and GDP: Let’s Wait and See

In discussions of the Trans Pacific Partnership (TPP), there are often very specific figures put out there as the estimated economic gains of this trade deal.  $78 billion of annual income gains for the U.S. is a commony cited number.

It is important to keep in mind, however, that these gains are based on assumptions about what might be in the TPP, not what is actually in the TPP.  That’s because there is no TPP yet.  

The estimates come from this study, and a more detailed previous study, by a group of trade economists.  But if you read the fine print, for example on p. 23 of the second link, they make clear that they are simply estimating the TPP benefits based on the liberalization coverage of past agreements among the same parties.

The extent of the liberalization that will be in the TPP is not clear because that’s what the parties are negotiating about right now: How much to liberalize each sector.  If trade policy were run by free market economists, everyone would liberalize on their own right now.  But trade policy is influenced heavily by special interest groups.  As a result, some import restrictions remain even after a trade negotiation.

Many commentators have come out for or against the TPP already, based on assumptions about what will be in it.  I’m waiting to see the full scope of what’s in the TPP (if the negotiations are ever concluded) before making a decision.  Any liberalization needs to be balanced out against “governance” parts, such as intellectual property protection, where the impact on GDP and welfare more generally are more uncertain.  We can’t really make that calculation until we see the final deal.