In a perversely egalitarian way, it’s comforting to know that it’s possible to work on trade policy for august think tanks like the Brookings Institution and the Peterson Institute for International Economics despite jaw-dropping ignorance on the subject. But only in a perversely egalitarian way.
Exhibit One: Ernesto Talvi’s column for the Project Syndicate website (perversely egalitarian, too?) calling for a major new U.S. trade agreement that would knit its existing Western Hemisphere trade deals into a Trans-American Partnership (TAP) that would rival in scale the Trans-Pacific Partnership (TPP) and transatlantic trade agreements (TTIP) Washington is already pursuing.
According to Talvi, a non-resident senior fellow at Brookings, the deal would create a vast new market comprising “620 million consumers, and…a combined GDP of more than $22 trillion (larger than the EU’s, and more than double that of China).” What could be more of a slam dunk for American businesses and their employees?
What Talvi either leaves out or doesn’t know is that the U.S. market already represents the vast majority of the TAP’s consuming power. Indeed, according to World Bank figures, the American economy is 68.56 percent the size of the entire $24.504 trillion Western Hemisphere economy, even including many countries that don’t yet have trade agreements with the United States. The U.S.’ share of the GDP of the combined hemispheric free trade zones it’s already created is that much bigger, mainly since that market excludes Brazil’s $2.246 trillion economy.
Even worse, other World Bank data make clear that the GDP figures greatly overstate the consumption and therefore importing potential of the Latin American countries currently in trade deals with the United States. For nearly two-thirds of the entire region’s population subsists on less than $10 per day.
So the big prize in Talvi’s scheme is an economic asset that Americans already have. Thus as has been the case with other U.S. trade agreements, most of what the U.S. economy can realistically hope to gain from more deals is even easier business access to vast quantities of cheap, highly trainable labor, not export access to thriving consumers. And as has also been the case with other U.S. trade agreements, the inevitable results will be higher trade deficits and therefore greater national debt.
Apparently just as clueless about U.S. trade policy is the Peterson Institute’s Tyler Moran. His July 31 blog post focuses on the allegedly forgotten impact of U.S. tariffs on American consumers, who are forced to pay higher prices for imports because of Washington’s determination to “protect domestic industry and jobs.” Even worse, according to Moran, “Poor households get hit hardest.”
But even if this argument were brand new – it’s anything but – what’s most important is what it reveals about the seemingly dysfunctional short-term memories of Moran and the organization employing him. Here we are, not even six years after a terrifying financial crisis ultimately caused by too many Americans substituting debt for their sagging real incomes in order to pay for their consumption. The U.S. is still woefully short of employment capable of financing consumption more responsibly. And Moran and the Peterson Institute are scolding policymakers for seeking to boost job-creation and wages – rather than enabling more consumption that would inevitably need to be paid for by more debt.
Oddly, Talvi and Moran are employed by organizations commonly known as thinktanks. Their work shows that, where trade issues are concerned, this term is a serious misnomer.