Latin American countries could face an economic downturn of 3.28 percent (GDP per capita)

Last week my project-team (“Global Economic Dynamics”) at the Bertelsmann Foundation released a study we prepared with the ifo institute (another German think-tank) that attempted the model the economic consequences of a US-EU free trade agreement (see the full study here).

The model forecasts that both the US and the entire European Union would profit from a comprehensive Transatlantic Trade and Investment Partnership (TTIP). Both parties seek a deep liberalization of trade, and our model indicates that such a deal would increase the real per capita gross domestic product while simultaneously boosting employment for both the EU and the US.

In the case of a broad free trade agreement that not only eliminates tariffs but also minimizes non-tariff barriers, real per capita income would increase by an average of 13.4 percent in the US and five percent in the 27 EU member states. In terms of labor, The US and Great Britain would benefit in particular, with nearly 1.1 million and 400,000 additional jobs created respectively.

However, these economic gains come at a price. Countries not participating in TTIP, especially emerging markets that are traditional trade partners of the US and EU, would face trade contraction that would result in decreases to real income and employment.