As their name suggests, free trade agreements are designed to help trade flourish between the countries involved. The hope is that when trade increases, society as a whole benefits. One of the key metrics for assessing that outcome is to look at changes in Gross Domestic Product (GDP), which provides one index of economic activity in a country. It does not, of course, measure other things that may be important to people, such as public services or quality of life, but it’s widely used.
GDP growth is one of the main benefits that will flow from US-EU TAFTA/TTIP, according to its supporters. They point to a study from the CEPR group in London, which was conducted on behalf of the European Commission as part of the preparations for negotiating a trade agreement with the US. Here are the headline figures from the study, as reported on Commission’s TTIP Web pages:
Independent research shows that TTIP could boost:
the EU’s economy by €120 billion;
the US economy by €90 billion;
the rest of the world by €100 billion
CEPR’s detailed report (pdf) explains that those figures would be the uplift in 2027 if an “ambitious” agreement were reached, as compared to the economies in 2027 without TTIP. So the predicted extra 0.5% GDP growth for both the EU and US is actually cumulative growth after ten years, and represents around 0.05% extra GDP per year, in the best possible case — hardly impressive.
Another way of looking at TAFTA/TTIP is in terms of its effects on the trade flows between the EU and US. According to the CEPR study, in the most ambitious (that is, most optimistic) case, imports to the US from the EU would increase by about €187 billion in 2027, while exports from the US to the EU would increase by €159 billion in the same year. But again, looking more closely at CEPR’s figures shows that 47% of those increased imports would be cars, which would also represents 41% of the increased exports. In other words, nearly a half of the increased trade that TTIP might bring according to this forecast would consist of swapping cars across the Atlantic.
What about the economic impact of the Trans-Pacific Partnership (TPP)? Figures for this have been harder to come by, which makes a new publication from the US Department of Agriculture particularly valuable, since it gives official estimates of what benefits might flow from TPP. Here’s the basic result:
Agricultural output in the United States will increase in most sectors due to increased market access within the TPP region, especially in cereals (1 percent), dairy products (0.5 percent), and meat (0.4 percent). Among TPP members, the largest percentage gains in agricultural output will be in meats in Australia, dairy in New Zealand, and “other agriculture” in Singapore. Agricultural output quantities will decline in most sectors in Japan and Vietnam in 2025 relative to the baseline.
As you can see, this details increases in agricultural production in 2025. But what about the increases in overall economic activity — GDP?
The largest macroeconomic impact of the TPP, in percentage terms, takes place in Vietnam, where real GDP would be 0.10 percent higher in 2025 with the implementation of the TPP than it would be under the baseline. Small gains in real GDP will also accrue to Japan (0.02 percent), and to New Zealand, Malaysia, and Mexico (all 0.01 percent). The TPP is projected to have no measurable impacts on real GDP in any other TPP member countries.
So according to the US Department of Agriculture’s model, the country whose GDP receives the biggest boost from TPP would be Vietnam, which would see a gain of 0.1% in 2025. Most countries would see considerably less than that, with both the US and Australia experiencing “no measurable impacts on real GDP” as a result of TPP. Now, it’s important to note that this study concentrated on the agricultural products. As it points out:
The scope of the TPP negotiations goes well beyond cutting tariffs; they also cover other areas that could impact agricultural trade, including investment, trade in services, technical barriers to trade, sanitary and phytosanitary barriers, etc. This analysis does not account for the gains that might be achieved in these other areas of the negotiations.
In other words, there could be more significant gains for the US and other nations in these areas. But many countries are banking on TPP giving a considerable boost to their agricultural sectors, whereas the new US study predicts no extra growth as a result, anywhere. That’s important, because the governments of both Australia and New Zealand have indicated that it will be necessary to make concessions in other areas in order to obtain those hoped-for positive results for their key farming sectors. But if the prediction is that these concessions will only result in increased agricultural trade, but not increased GDP overall, the question has be asked: is it really worth accepting things like longer copyright terms and stronger pharma patents if the payback in terms of real growth is small or non-existent?