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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Congressional Research Service (CRS)

 

Trade Agreements: Impact on the U.S. Economy
James K. Jackson, Specialist in International Trade and Finance
November 10, 2009
http://opencrs.com/document/RL31932/2009-11-10/download/1013/
[full-text, 24 pages]

 

Summary

The United States is in the process of considering a number of trade agreements. In addition, the

111th Congress may address the issue of trade promotion authority (TPA), which expired on July

1, 2007. These agreements range from bilateral trade agreements with countries that account for

meager shares of U.S. trade to multilateral negotiations that could affect large numbers of U.S.

workers and businesses. During this process, Congress likely will be presented with an array of

data estimating the impact of trade agreements on the economy, or on a particular segment of the

economy.

 

An important policy tool that can assist Congress in assessing the value and the impact of trade

agreements is represented by sophisticated models of the economy that are capable of simulating

changes in economic conditions. These models are particularly helpful in estimating the effects of

trade liberalization in such sectors as agriculture and manufacturing where the barriers to trade

are identifiable and subject to some quantifiable estimation. Barriers to trade in services,

however, are proving to be more difficult to identify and, therefore, to quantify in an economic

model. In addition, the models are highly sensitive to the assumptions that are used to establish

the parameters of the model and they are hampered by a serious lack of comprehensive data in the

services sector. Nevertheless, the models do provide insight into the magnitude of the economic

effects that may occur across economic sectors as a result of trade liberalization. These insights

are especially helpful in identifying sectors expected to experience the greatest adjustment costs

and, therefore, where opposition to trade agreements is likely to occur.

 

This report examines the major features of economic models being used to estimate the effects of

trade agreements. It assesses the strengths and weaknesses of the models as an aid in helping

Congress evaluate the economic impact of trade agreements on the U.S. economy. In addition,

this report identifies and assesses some of the assumptions used in the economic models and how

these assumptions affect the data generated by the models. Finally, this report evaluates the

implications for Congress of various options it may consider as it assesses trade agreements.

 

Contents

Background ..........................................................................................................................1

An Overview of the Major Agreements .................................................................................1

Multilateral Agreements ..................................................................................................1

Regional Trade Agreements ............................................................................................3

Completed Bilateral Trade Agreements ...........................................................................5

Signed Bilateral Trade Agreements Requiring Congressional Approval ...........................7

Pending Bilateral Trade Agreements................................................................................8

Trade Liberalization and the Gains From Trade .....................................................................9

Production Gains.............................................................................................................9

Adjustment Costs..........................................................................................................10

Consumption Gains....................................................................................................... 11

Economic Growth ......................................................................................................... 11

Estimating the Economic Impact of Trade Agreements ........................................................12

Overview......................................................................................................................12

The Michigan Model and Estimates ..............................................................................13

Investment and Capital Flows .......................................................................................16

Data on Barriers to Trade in Services ............................................................................18

Implications for Congress ...................................................................................................20

Tables

Table 1. Major Components of U.S. Gross Domestic Product ....................................................10

Table 2. Estimated Economic Effects on the United States of a 33% Reduction in Barriers to Trade in Agriculture, Manufactures, and Services at the Doha Development Round......14

Table 3. Estimated Economic Effects on the United States of Free Trade Agreements with Various Trading Partners................15

Table 4. Projected Sectoral Employment Effects (Job Gains and Losses) in the United States of Various Multilateral Trade Agreements.......16

Table 5. Projected Sectoral Employment Effects (Job Gains and Losses) in the United States of Various Regional and Bilateral Trade Agreements........17

 

Contacts

Author Contact Information ......................................................................................................21

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
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