Trade deals have been both growth and recovery killers

If President Obama asked Congress for sweeping authority to resume policies that have already sliced hundreds of billions of dollars worth of growth from a feeble-enough recovery, lawmakers would laugh him out of Washington. Yet that’s exactly the kind of request that Congress will be considering seriously as it debates renewing fast track presidential authority to negotiate new trade agreements modeled on recent deals.

The Obama administration itself has touted the link between past and prospective trade deals, calling the approach used in its recent agreement with Korea for opening markets, enforcing terms, and resolving disputes the model for its centerpiece Trans-Pacific Partnership. In turn, the Korea deal has built on ends and means first developed for the North American Free Trade Agreement a quarter century ago, and refined in numerous initiatives since.

{mosads}Moreover, it’s easy to identify the impact of these trade deals on the economy and its growth. According to the U.S. government and textbook economics, when the nation’s trade balance (the difference between its exports and imports) improves in favor of exports, the gross domestic product, the result adds to the economy’s expansion. When the trade balance worsens, the result subtracts from growth.

But the trade balance is significantly affected by developments largely unrelated to trade agreements and similar policy decisions (like whether and how strongly to respond to protectionist foreign practices like undervaluing a national currency to gain trade advantages having nothing to do with market forces). America’s oil trade balance, for example, has improved dramatically in recent years. Credit, however, goes to the domestic energy boom. Further, oil trade almost never comes up in trade diplomacy, mainly since consuming countries almost never try to block imports. The United States also runs a healthy surplus in its services trade. Yet trade policy’s impact here is limited, since most countries insist on tightly controlling sectors like finance, telecommunications, and media.

So measuring the effects of trade policies on the recovery requires stripping out these statistics and focusing on the trade flows that are highly policy-sensitive – in goods other than oil. And regularly released Commerce Department on trade and growth make clear how harmful the impact has been since the last recession officially ended in the middle of 2009.

From the second quarter of that year, which ended in June, through the fourth quarter of 2014, the economy grew by $490 billion, adjusted for inflation. (Price adjusted measures of the economy’s size and growth are the ones most closely followed by analysts .) But the non-oil goods trade balance – which has long been a deep deficit – worsened by $76.92 billion in “real” terms during this period.

Therefore, had the non-oil goods deficit simply remained the same over those five and one half years, the economy would have expanded by $566.92 billion after inflation – or 15.70 percent more. That is, the growth of the trade deficit strongly influenced by trade deals and similar policies has slowed the recovery by 15.70 percent.

Moreover, the costs don’t stop with this half-trillion-plus-dollar figure. For virtually all of the damage has been done in the private sector – which has always led the economy in productivity and innovation, and thus is crucial to America’s future prosperity. In addition, although economists disagree on trade’s impact on employment, any set of policies that undermines growth is surely undermining job creation significantly as well.

In fact, this trade policy-related damage to the current recovery is nearly twice as great as during the past two recoveries. Those economic expansions, however, could count on strong purely domestic engines of growth – including , prominently, technology and interlocking credit and housing bubbles. With such power sources exposed as frauds, it’s especially important nowadays that trade policy contributes on net to output and job creation – and that Congress reject the president’s trade agenda absent restructuring that can produce better results.

Tonelson, author of “The Race to the Bottom,” blogs on economic and security issues at RealityChek.



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