Politicians promise a bonanza of growth and jobs from the world's biggest ever trade deal, but their claims are based on biased models, warn two political economists

Who do you believe? (Image: Rachel Megawhat/Alamy Live News)

SUPPORTERS of TTIP claim the agreement will deliver much-needed growth and jobs. Karel De Gucht, the outgoing EU trade commissioner, described it as “the cheapest stimulus package you can imagine”. To UK prime minister David Cameron it is a “once-in-a-generation prize”.

At the centre of this rhetoric lie various claims about the economic impact of TTIP. These are taken from economic models produced at the behest of the European Commission. They estimate that the deal will generate an extra €119 billion of GDP annually for the EU, or €545 for each family of four, by 2027 (€95bn in total and €655 per family in the US).

Not only are these figures very modest, they are fundamentally misleading. They both exaggerate the potential benefit of TTIP and downplay its potential costs.


Not only are the claimed economic gains very modest, they are also fundamentally misleading

Firstly, much criticism has been directed at the kind of modelling used. This is known as computable general equilibrium (CGE) modelling, which is used to predict how economies will react to changes in policy, such as a trade agreement.

CGE is a form of mainstream economic modelling that assumes all markets are perfectly competitive, efficient and in equilibrium. Or, in lay terms, that there is a buyer for every product or service, including labour. Not only is this a poor approximation of reality, but CGE models are notoriously open to bias. They can easily be manipulated to obtain the sorts of results the researcher wants.

These biases are evident in the TTIP models. They rely on an assumption that the deal will eliminate half of the non-tariff barriers (or at least half of those that could, in principle, be removed).

The history of EU-US regulatory cooperation suggests that this is wildly optimistic. The most that negotiators have been able to agree on in the past are a series of modest “mutual recognition agreements” of each other’s rules.

Moreover, the models assume such barriers will be eliminated across all sectors of the economy, generating synergies that will promote growth. This, again, is optimistic to say the least.

The figures also hide much that is not easily measurable. This includes the social impact of trade liberalisation, which often leads to workers being forced out of uncompetitive industries.

The models do include estimates of “job displacement” – ranging from 400,000 to 1.1 million in the EU – but they also assume that these workers will be seamlessly reallocated to new jobs by the market. Experience suggests this is not always the case.

Promising growth and jobs and justifying the promise with economic models has been a powerful tool in the past to stifle political debate on controversial issues. No politician wants to be seen as anti-growth and anti-jobs.

It’s time we challenged this tactic so that we can have an open and constructive discussion of the real costs and benefits of TTIP.

Read more: “TTIP: The science of the US-European trade megadeal“

This article appeared in print under the headline “An economy of truth”