May 04, 2015
Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:
“The trouble with our trade debates is that people assume they’re only about economics.”
I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)
Anyhow, we do get some economics in Samuelson’s piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It’s worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.
The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.
The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008.
Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.
This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.
Lawrence also criticizes Paul Krugman’s analysis showing that trade with China has lowered wages by complaining that his model is “simplistic.” He seems unaware of the research by David Autor and others that support this assessment.
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