Today, Public Citizen’s Global Trade Watch (GTW) released a study on the United States International Trade Commission’s (USITC) General Equilibrium Model for estimating export and import growth as a result of trade agreements. I helped compile the background of the report, and I wanted to take a second to introduce myself.
My name is Justin Fisk, and I am the Senior Researcher at GTW. Since I first arrived in Washington, D.C. four years ago, I have been increasingly interested in international trade and its impact on the United States. During my graduate work at George Washington University, I focused my studies on international trade. At the same time, I interned full-time in many positions within the federal government and the private sector, including the Trade Promotion Coordinating Committee at the Department of Commerce and the government affairs division of a trade law firm. After I completed graduate school, I worked for two years at the Council of State Governments helping states develop export promotion plans for small businesses in the United States.
I decided to leave the comforts of my previous job to take a more challenging role at Global Trade Watch. I am excited to be here, and I look forward to sharing the findings of our research in the coming months.
For my first blog, I wanted to discuss the USITC model. It is an important time to review and analyze this model since the USITC’s next report is expected to be released next week on May 18, which will analyze the impact of the Trans-Pacific Partnership on the United States.
Policymakers need to understand the data limitations of the current model employed by the USITC. Not only does it fail to take into account currency manipulation – which the TPP has no enforceable provisions against – it also assumes that workers who lose jobs to trade can easily and seamlessly find other opportunities for work (more examples of the assumptions the model incorporates can be found in the official report here). It shouldn’t be surprising that the USITC has consistently failed to estimate in any meaningful way the impacts of a free trade agreement.
Looking back, the USITC predicted improved trade balances as a result of the 1993 North American Free Trade Agreement (NAFTA) and 2007 U.S.-Korea Free Trade Agreement. The agency projected only a small deficit increase from China’s 1999 World Trade Organization entry deal and the granting to China of Permanent Normal Trade Relations status.
Instead, the U.S. trade deficits with the trade partners increased dramatically and, as detailed in the text of the new study, manufacturing industries from autos to steel and farm sectors such as beef that were projected to “win” saw major losses. A government program to help Americans who lose jobs to trade certified 845,000 NAFTA jobs losses alone.
The USITC report also estimates changes of exports and imports of certain products. For example, the USITC concluded that NAFTA would result in little or no impact on meat imports into the United States because of already low U.S. tariff rates, and that if anything, U.S. exports of meat to Mexico would increase. The report projected that U.S. beef exports to Mexico would increase in the long-term by 16 percent or more. In reality, American cattle producers experienced the opposite outcome from NAFTA. In 1993, the United States exported 39,000 metric tons of beef and veal to Mexico and imported only 13,000 metric tons. By 2015, the United States imported more than 30,000 metric tons of beef and veal from Mexico more than it exported to Mexico.
In the China study, the USITC report estimated that U.S. exports of iron and steel would increase by 5.1 percent. The report does not project changes in import levels. In reality, U.S. exports of iron and steel increased by $1.1 billion or 239 percent. The USITC report did not however anticipate that U.S. imports from China of iron and steel would increase by $12.3 billion or by nearly 300 percent. The U.S. trade deficit with China in steel and iron products has worsened by nearly $7.9 billion, increasing from $2.7 billion in 2000 to $10.7 billion in 2015. In November 2015, nine steel associations wrote a joint letter insisting that China’s “overwhelmingly state-owned and state-supported steel industry” is the root problem of the 700 million metric tons of excess steel capacity in the world today, which is making it difficult for private sector firms in the U.S. to compete.”
The USITC report also projected that the U.S.-Korea FTA would likely increase exports of grain to Korea, “particularly exports of corn.” In reality, U.S. exports of corn have decreased by $1 billion or by 64 percent in the first 4 years of the Korea FTA. The Center for Economic and Policy Research released an interesting study in April that found, “there is no clear relationship between the expected effect of the KORUS on exports to Korea and the actual change in exports relative to trend.”
As mentioned earlier, the USITC model utilizes false assumptions which surely impact its results. With this in mind, policy makers should approach USITC report on TPP’s impact with caution.