Canada, Christine LaGarde, export-led growth, Following Up, IMF, International Monetary Fund, Japan, lobbies, Malaysia, Mexico, multinational companies, Obama, offshoring, TPP, Trade, trade balances, Trans-Pacific Partnership, Vietnam
Does the International Monetary Fund (IMF) have it in for President Obama’s trade agenda? Last week, I noted that a speech by IMF chief Christine LaGarde threw freezing water all over the major economic argument made by Mr. Obama and other supporters on behalf of his Trans-Pacific Partnership (TPP). This morning, the Pacific Rim trade deal was drenched by a similarly frigid bucket when the Fund released the data underlying LaGarde’s remarks.
The economic case for the TPP serving U.S. interests holds that it will speed up the nation’s historically phlegmatic recovery by enabling American businesses and their workers to sell to exciting new growth markets overseas. Unfortunately, as LaGarde’s speech confirmed, everything we’ve learned about the world economy in the last year or two is that the globe’s biggest out-performer – at least among the major powers – is none other than the United States. And as I keep writing, America is also a growth champion when it comes to the TPP countries themselves. Today’s latest set of IMF global growth projections provide yet more evidence.
Like all economic forecasts, the new IMF projections should be viewed with some skepticism. But it’s surely noteworthy that they leave intact, and even may strengthen slightly, the story that TPP will tie the United States more closely to global economic laggards, not leaders. Therefore, it’s likeliest to drag America’s own performance down even further.
The new IMF figures update the last set of projections, issued in October, and nearly every major region and country receives a growth downgrade – including the United States. TPP supporters can also in principle take heart from the Fund’s prediction that America’s growth from 2015 to 2017 will be slower than overall global growth. In absolute terms, the ongoing U.S. expansion will also lag those of TPP signatories like Mexico, and apparently Vietnam and Malaysia.
But it’s vital remember that those countries grow mainly by exporting, and more specifically by improving their trade balances. Since the United States is a major customer for all, their growth is unlikely to benefit America on net.
Moreover, economists pay at least as much attention to changes in growth rates as to the growth rates themselves, and in all three cases, slowdowns are expected this year and next. In Mexico’s case, it’s expected to match the U.S. rate (by 0.2 percentage points compared with the October forecast for each year). The Fund doesn’t provide specifics for Vietnam and Malaysia, but it does believe that expansion in their Southeast Asian region will be weaker by nearly the same degree (0.1 percent this year and 0.2 percent in 2017).
And for the larger TPP signatories, the IMF outlook is gloomy as well. The Fund has downgraded expected Japanese and Canadian growth rates for 2016 and 2017 by a bit less than their U.S. counterpart. But both expansions are still expected to lag America’s in absolute terms. Further, in both these cases, too, net exporting to the United States, will be central to any growth hopes.
Given the size and diversity of the U.S. economy – and its consequent potential for even more self-sufficiency than it’s already displayed – American political leaders logically would be trying to separate America from a weak-growing world still further. But lobbies that benefit over the short run from continued trade expansion (like offshoring-happy multinational companies) still wield the whip hand over Washington, D.C. trade policymaking. So a slowdown in the foolhardy U.S. rush toward greater integration with that feebly growing, export-dependent world is clearly the best that can be realistically hoped for.