The International Trade Commission Report on the TPP: Solid but Too Cautious?

Peter A. Petri (PIIE) and Michael G. Plummer (Johns Hopkins University and East-West Center)
May 19, 2016 11:45 AM

The massive new International Trade Commission (ITC) report on the Trans-Pacific Partnership (TPP) is a deep and high-quality study. The report describes the key economic gains to be achieved by the TPP, while acknowledging certain inevitable costs. It emphasizes the importance of new rules on the digital economy and global markets in services, and benefits for agriculture, advanced manufacturing, and more generally the advantages for smaller companies. And it recognizes important new mechanisms to level the international playing field on labor, environmental, and currency issues.

The ITC headline estimate of TPP benefits—income gains of $57 billion annually for the United States in 2032—is significant but arguably too low. This new study is more ambitious than previous ITC efforts covering other trade agreements, but it is still very cautious in quantifying gains. It focuses primarily on provisions, such as tariffs cuts and committed liberalization in some service sectors, that can be modeled in a noncontroversial way. The report does discuss a range of other important TPP provisions, such as regulatory cooperation, trade facilitation, disciplining state-owned enterprises, and opening up government procurement, but shies away from including them in its quantitative estimates. In addition, the ITC does not model improvements in US productivity, even though the TPP would shift resources to America’s most productive companies as they expand through international sales.

The more comprehensive estimates of the Peterson Institute for International Economics (PIIE) project gains of $131 billion annually for the United States in 2030, a little more than twice that of the ITC. In fact, some of the discrepancy stems from the PIIE assumption that a strong agreement will, to some extent, stimulate US trade and investment generally, and not just with TPP partner countries. This assumption is used in many similar studies.

More comprehensive estimates are also more uncertain. For that reason, the Peterson Institute presents a range of possible scenarios. (That approach made it possible, for example, to isolate the reasons for the discrepancy mentioned above.) Significantly, the larger PIIE estimate is more consistent with much contemporary empirical research on trade agreements—for example, by Professors Jeffrey Bergstrand, Peter Egger, Nuno Limão, and others—which predicts substantial benefits by analyzing data from hundreds of agreements concluded in the past.

The PIIE study notes significant increases in real wages. To its credit, the ITC recognizes that higher wages could also expand the economy’s labor pool and employment under some circumstances. This recognition is a valuable innovation; the ITC estimate that 128,000 jobs would be added is plausible and would be especially beneficial if slow economic growth persists into the future.

The bottom line: The ITC has produced an excellent, if cautious, report, a treasure trove of new information on the nuts and bolts of the TPP. It strengthens the story emerging from the most serious TPP research: The agreement will likely mean positive and significant gains in wages and incomes for a large majority of US workers. The ITC report will help Americans look beyond the political debate to understand what the TPP could really mean for them. 

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