Josh Bivens, More Notes on the Gains From Trade and Who Gets Them

From Josh Bivens’ post today on the EPI blog (emphasis mine):

The overall net benefits of trade are much smaller than commonly advertised, but the regressive redistribution trade causes is considerable.

First, on the gains from trade policy (i.e., how much we should expect national income to rise if we sign trade agreements), [NYT reporter Binyamin] Appelbaum refers to a piece from the Peterson Institute of International Economics claiming that trade liberalization added 7.3 percent of GDP to American incomes by 2005—about $9000-10,000 per American household. This is just not true. It’s a wildly inflated number that should not be in the policy debate (and if you need much smarter and better-credentialed people making the some point—here’s Dani Rodrik). This number is an effort to bully people into going along with today’s trade agreements by making them think the stakes are utterly enormous. In fact, even if it was correct (again, it’s not) this study would be irrelevant to today’s trade policy debates because the sum total of economic gains from all post-1982 trade agreements (this includes NAFTA, the completion of the General Agreement on Tariffs and Trade, the formation of the WTO, and the permanent normal trading relations with China) is estimated to be just $9 per household, meaning that  99.9 percent of the gains from trade estimated in the study happened before 1982. So even if trade liberalization really did spur mammoth gains at some point in the (distant) past, the effects were over by the early 1980s.

Second, on the distribution of gains and losses from trade, it is striking to me that so many economists who favor signing every trade agreement that comes down the pike can still feign surprise that expanded trade seems to be bad for most workers’ wages. Put simply, it is completely predicted in textbook trade economics that wages for most workers will fall and inequality will rise when the United States trades more with poorer trading partners. Yes, expanded trade is predicted to lead to higher overall national income, but it is also predicted to redistribute enough income within the [United States] that it can (and is likely to) make most workers worse-off. This should not be a surprise to anyone familiar with the topic….

Finally, a trade economist named David Weinstein is quoted in the piece making a common claim: we may actually worry too much about the losses from trade because losers are easy to identify but the gains from trade are hard to see because they accrue to a large and diffuse group. This corresponds with the common view that trade agreements’ costs consist only of manufacturing workers losing their jobs. But workers who have lost their jobs to imports are only the tip of the iceberg in terms of trade’s costs—the real losses from trade also include the wages of every worker in the economy who subsequently competes with the trade-displaced for remaining jobs. This essentially means all workers without a 4-year college degree….

Bivens and co are asking the right question, “How will any economic gains from the TPP be distributed?” and they have a pretty compelling answer.  Their numbers lead to me to conclude that the TPP (and the TPA) is bad news and that I should oppose it.  In contrast to Bivens and co, pro-TPPers don’t address the distribution question.  Compared to Bivens and co pro-TPP arguments are vague.  They point to likely increases in GDP but don’t get into probable distribution of those gains.  (They don’t address how changes in macro conditions will manifest at  the micro level.  Bivens and co do.)  If you want to sell me on the TPP then address the distribution question.  Convince me that the vast majority of Americans who work for a living aren’t going to get screwed.