The EU and the US are currently negotiating the Trans-Atlantic Trade and Investment Partnership (or TTIP), an agreement aimed at boosting trade by eliminating differences in commercial regulations. Official studies of TTIP project benefits in terms of GDP and household income while they are less clear about employment and income distribution.
Unfortunately, recent literature has shown that the main existing studies of TTIP rely on inadequate economic models (of the CGE type). Following this lead, in a Tufts University working paper I have analyzed TTIP with a different model -- the United Nations Global Policy Model -- and found dramatically different results. Here's a summary for the European Union:
· TTIP would lead to losses in terms of net exports after a decade, compared to the baseline scenario. Northern European Economies would suffer the largest losses (2.07% of GDP) followed by France (1.9%), Germany (1.14%) and United Kingdom (0.95%).
· TTIP would lead to net losses in terms of GDP. Consistent with figures for net exports, Northern European Economies would suffer the largest GDP reduction (-0.50%) followed by France (-0.48%) and Germany (-0.29%).
· TTIP would lead to a loss of labor income. France would be the worst hit with a loss of 5,500 Euros per worker, followed by Northern European Countries (-4,800 Euros per worker), United Kingdom (-4,200 Euros per worker) and Germany (-3,400 Euros per worker).
· TTIP would lead to job losses. We calculate that approximately 600,000 jobs would be lost in the EU. Northern European countries would be the most affected (-223,000 jobs), followed by Germany (-134,000 jobs), France (- 130,000 jobs) and Southern European countries (-90,000).
· TTIP would lead to a reduction of the labor share (the share of total income accruing to workers), reinforcing a trend that has contributed to the current stagnation. The flipside of its projected decrease is an increase in the share of profits and rents, indicating that proportionally there would be a transfer of income from labor to capital. The largest transfers will take place in UK (7% of GDP transferred from labor to profit income), France (8%), Germany and Northern Europe (4%).
· TTIP would lead to a loss of government revenue. The surplus of indirect taxes (such as sales taxes or value-added taxes) over subsidies will decrease in all EU countries, with France suffering the largest loss (0.64% of GDP). Government deficits would also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the Maastricht limits.
· TTIP would lead to higher financial instability and accumulation of imbalances. With export revenues, wage shares and government revenues decreasing, demand would have to be sustained by profits and investment. But with flagging consumption growth, profits cannot be expected to come from growing sales. A more realistic assumption is that profits and investment (mostly in financial assets) will be sustained by growing asset prices. The potential for macroeconomic instability of this growth strategy is well known after the recent financial crisis.
These results point to a general conclusion: seeking a higher trade volume is not a sustainable growth strategy for the EU. In the current context of austerity, high unemployment and low growth, increasing the pressure on labor incomes would further harm economic activity. On the contrary, any viable strategy to rekindle economic growth in Europe would have to build on a strong policy effort in support of labor incomes.
Econometrics and Data Specialist
Social Protection Department
International Labour Organization
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