The Peterson Institute Agrees That Trade Agreements, Bilateral or Multilateral, Can Alter the U.S. Trade Deficit
The Congressional Research Service (CRS) recently released a report asserting that, “Economists generally argue that it is not feasible to use trade agreement provisions as a tool to decrease the deficit because trade imbalances are determined by underlying macroeconomic fundamentals.” Ironically, the scholar they cite in support of that claim has repeatedly said the very opposite.
The CRS report cites a policy brief written by C. Fred Bergsten from the Peterson Institute for International Economics that says most economists argue that reducing the U.S. budget deficit is the most effective, if not only, “policy initiative that would reduce the U.S. current account deficit on a lasting basis.” Bergsten does not provide sources in support of his claim.
In the brief, Bergsten omits a substantial body of literature that illustrates how trade agreements have had substantial effects on U.S. trade deficits. But more perversely, Bergsten himself has claimed that inclusion of certain terms in trade agreements can alter the U.S. trade balance.
Earlier this year, in a piece on renegotiation of the North American Free Trade Agreement (NAFTA) Bergsten wrote that, “... currency manipulation is an unfair trade practice that can have huge effects on trade flows and trade balances, and it is thus quite appropriate for the administration to address it in their trade negotiations.”
Bergsten co-authored another paper in 2012 suggesting that not only has currency manipulation increased the U.S. trade deficit, but it has also caused substantial job loss in the United States:
This buildup of official assets — mainly through intervention in the foreign exchange markets — keeps the currencies of the interveners substantially undervalued, thus boosting their international competitiveness and trade surpluses. The corresponding trade deficits are spread around the world, but the largest share of the loss centers on the United States, whose trade deficit has increased by $200 billion to $500 billion per year as a result. The United States has lost 1 million to 5 million jobs due to this foreign currency manipulation.
Bergsten points out later in the 2012 paper that adding strong and enforceable currency manipulation provisions in multilateral or bilateral trade agreements could help alleviate this problem.
While a bevy of editorial writers and news reporters often repeat the claim that trade deficits are caused by macro-economic factors, not trade agreements, Bergsten himself has often made the opposite point. This begs the question of why the Congressional Research Service would have as its one source in support of a specious claim an economist who has regularly argued the very opposite.