October 05, 2015
A Washington Post article on the Trans-Pacific Partnership (TPP) referred to President Obama’s assertion that the pact will boost growth. It would have been appropriate to point out that almost no economists support the claim that the pact will have a noticeable positive impact on growth.
The most favorable positive assessment comes from the Peterson Institute. It projects that the agreement would boost growth by 0.03 percentage points annually over the next dozen years. This would mean, for example, that if growth would have been 2.2 percent without the TPP, it would be 2.23 percent with the TPP. Other projections have been lower. For example, an analysis by the United States Department of Agriculture concluded that the gains would be too small to measure.
It is also worth noting that none of these studies took into account the negative impact on growth from the higher drug prices that would be the result of the stronger protectionist measures in the TPP. The United States currently spends more than $400 billion a year on prescription drugs. This amount will almost certainly increase in both the U.S. and elsewhere as a result of stronger patent and related protections in the TPP. Higher drug prices will pull money out of people’s pockets, leaving less to spend in other areas, thereby slowing growth.
For these reasons, it would have been useful to point out that President Obama is making a Trump-like claim in arguing that the TPP is a mechanism to increase economic growth. That is simply not a plausible story.
Comments