Lori Wallach on HuffPo: "Jobs & Exports: New Report Highlights Obama Peril with Bush Trade Pacts"
GAO Finds U.S. Market Share Dropping in Certain FTA Partners

Lobbyists Pick "Eat, Pray, Love" over Report Discrediting their Major Trade Claim?

I am just getting back from vacation, so I understand the temptation to pick up a bestseller rather than more policy analysis. At my job, however, I'm expected to read reports that affect our major work projects. "Twilight" has to be left for the nighttime. Some members of top corporate lobby groups don't seem to be getting the same bang for their buck out of their member dues, according to reporting today from Inside U.S. Trade.

As we wrote earlier in the week, the Chamber and NAM have latched onto the bizarre response to our study that they don't like our methodology for calculating the trade deficit, even though we use the same method that the U.S. International Trade Commission uses - the government's non-partisan trade analysis agency. According to today's Inside U.S. Trade:

Vargo defended NAM's methodology, arguing that the Public Citizen calculations are "illegitimate" because they inflate import numbers while keeping export statistics low. They do so by subtracting re-exports from total U.S. exports while still counting these items on the import side of the ledger, according to Vargo. He argued if the report wanted to exclude re-exports, then it also had to subtract the value on the import side because those goods are not imported for consumption.

Oh, my. that would be a serious flaw, if true. But if we turn to page 27, 29, 31 and 32 of our report, we read that it isn't. To wit, from page 32:

The data on trade flows in this report was gathered from the Interactive Tariff and Trade DataWeb of the USITC in March and September 2010. For analysis of exports, the report used data on “domestic exports,” which, according to the USITC, “represents goods that are grown, mined, produced, or manufactured in the United States and sent to foreign countries. Domestic exports include goods from U.S. Foreign Trade Zones that have been enhanced in value.” In this report, data on imports are “imports for consumption,” which “represents foreign goods that immediately enter U.S. consumption channels. Goods being held in bonded warehouses or U.S. Foreign Trade Zones are not included until they are withdrawn for consumption.” 

Domestic exports and imports for consumption are the best measures for determining the economic effects of trade flows. According to the USITC, which is responsible for producing independent studies on the effect of FTAs on the U.S. economy for Congress, “Analysis of international trade data, whether for tabular, econometric, or modeling purposes, almost always excludes transshipments [i.e. re-exports] and relies on data on domestic exports..." An economist at the USITC has further noted that, “For economic analyses, such as for understanding the position of a particular U.S. industry, or for labor or environmental questions, domestic exports and imports for consumption are more likely to be relevant concepts than total exports and general imports, because they are more closely tied to the U.S. market.”

Inside U.S. Trade also reports that Vargo doesn't like that we include China in our group of non-FTA partners, because the Chinese economy is growing so dang fast.

Vargo specifically cited the fact that the Public Citizen report does not take into consideration the fact that economic growth in China, a non-FTA partner, has been on average greater than growth in FTA partners like Canada. In this way, comparing growth rates among FTA and non-FTA partners may be misleading, as these differences could be due to factors unrelated to the FTAs themselves, he signaled.

In fact, our report does anticipate Vargo’s objection. In footnote ii on page 8, the report explains that we computed the results with China excluded to see if China alone was driving the exports to non-FTA partners. As it turns out, the FTA group STILL lags the non-FTA group, even when China is erased from the map. We decided to go yet another step further and exclude China, India, and Vietnam from the analysis, and, although the exercise is a bit ridiculous, the results indicate that the “FTA penalty” persists.

But Vargo's claim is interesting. Is he suggesting that abnormally bad things tend to happen to our trading partners when they sign an FTA, but abnormally good things happen to countries that don't sign FTAs? That would be the only explanation for why this type of variation would matter, when we're looking at differentials in export growth rates between trading partners across identical time horizons. All else equal, I would assume that, among 17 FTA partners and 180 non-FTA partners, there would be some good things happening in some of the countries, some bad things happening in some of the countries, but that the bad things wouldn't be concentrated disproportionately in one group or the other.

Sure, there's been some evidence that bad things have happened to countries mysteriously soon after they signed FTAs. (Lower growth, rural displacement, etc., see here, here, and here.) It's interesting to know that NAM thinks that there may be some concentration of such bad things in our FTA partners. Definitely worth further study.

But, at the very least, we seem to all be in agreement that "domestic exports minus imports for consumption" is a legitimate measure of the trade deficit. Now, we've still got to get to the bottom of why NAM pushes trade deals that are associated with lower-than-average export growth. 

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