The Trade Numbers Game

CAMBRIDGE – The Trans-Pacific Partnership (TPP) – a mega trade deal covering 12 countries that together account for more than one-third of global GDP and a quarter of world exports – is the latest battleground in the decades-long confrontation between proponents and opponents of trade agreements.

As usual, the pact’s advocates have marshaled quantitative models that make the agreement look like a no-brainer. Their favorite model predicts increases in real incomes after 15 years that range from 0.5% for the United States to 8% in Vietnam. Moreover, this model – developed by Peter Petri and Michael Plummer, from Brandeis and Johns Hopkins Universities, respectively, building on a long line of similar frameworks by them and others – foresees relatively insignificant cost to employment in affected industries.

The TPP’s opponents have latched on to a competing model, which generates very different projections. Produced by Jeronim Capaldo of Tufts University and Alex Izurieta of the United Nations Conference on Trade and Development (along with Jomo Kwame Sundaram, a former UN Assistant Secretary-General), this model predicts lower wages and higher unemployment all around, as well as income declines in two key countries, the US and Japan.

There is no disagreement between the models on the trade effects. In fact, Capaldo and his collaborators take as their starting point the trade predictions from an earlier version of the Petri-Plummer study. The differences arise largely from contrasting assumptions about how economies respond to changes in trade volumes sparked by liberalization.