Peter Matheson

Economic Counsellor

Part of Partners in Prosperity

22nd March 2013 Washington DC, USA

Trade Partnerships: The simple power of good ideas

Last week, I argued that a successful Transatlantic Trade and Investment Partnership  would put millions of consumers on both sides in touch with millions of businesses on both sides and be a real shot in the arm for business and jobs.

In that blog, I argued that a successful TTIP would benefit the US in terms of higher exports and more jobs. A valid follow up question is: “Was I being misleading about the net benefits by focussing primarily on what the US exports as opposed to what it imports?” Critics argue that US firms simply sell more to European customers but lose out at home as European firms sell more to Americans. The two cancel out and there is no more US growth and no more US jobs than there otherwise would have been – only more ships passing one another in the night loaded with even more goods and visiting more shores. In this blog, I wish to explain in this blog why those types of criticism are misplaced.

Evidence also completely refutes the notion that trade is somehow a zero sum game or neutral in terms of its costs and benefits. Trade barriers today are already much lower than they were four decades ago and ten times the dollar value of goods and services cross borders today than they did when President Carter was in the White House. Yet there are some 65 million more people employed in the US today than there were in 1970. And in Europe, where economic difficulties have been well advertised in recent years, employment has increased by around a quarter since the conclusion of the GATT round in the 1990s. Growing trade has marched hand in hand with rising employment for both sides and, many would argue, has helped spur it.

Another objection to this pro-trade thinking  is that continental Europe’s economies are struggling and won’t be able to buy more goods and services from the US. Again, the facts completely undermine this. First, trade has grown faster than GDP in recent years so has the potential to lead growth to higher rates not to slow it down. Second, and despite all the high profile difficulties of recent years, the European Union economy is still worth almost $18 trillion per year – that’s a lot of customers for a successful US firm selling quality wares. Moreover, when consumers are finding things hard, that’s exactly when they are going to want access to better quality products at the same or even lower prices – creating opportunities for thousands of hard working US firms. But again, such a criticism overlooks the dynamic nature of trade – Europe buying more from the US boosts the US economy and makes Americans better off and hungrier for European goods and services. And let’s not forget the channels of more innovation and invention which in turn spur more growth.

Of course, shifting trade patterns don’t necessarily benefit everyone straight away. There will be winners and losers in a similar way to the way invention of new technologies creates winners and losers. No one argues that the advance of beneficial technologies should be stopped because it  creates some losers. Instead, people agree that societies should embrace technological advancements and then consider ways of addressing any adverse by-products it gives rise to. It’s the same with trade but on the whole the economic changes it gives rise to are worthwhile.

There is a lot of debate around economic policy. That is a good thing – its right that economic policies are scrutinised, examine and compared. But trade and investment partnerships are one area of policy that historically attracts support from different ideological camps. At a time when all our economies could benefit from a shot in the arm let’s hope this discussion can advance quickly to translate into concrete policy moves.

About Peter Matheson

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury.…

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury. Principally advising Government Ministers on the economic forecast and related macroeconomic developments. He also worked for a period for the Scottish Government on economic issues.