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NewsFlash: December 17, 2007 

An Exaggerated Claim of Global Benefits

In the second in this series, EPI economist Josh Bivens continues his fact-check of two dubious numbers that are being used in the debate over trade agreements.  In the issue brief The Marketing of Economic History: Inflating the Importance of Trade Liberalization, released today be the EPI, Bivens finds recent claims that trade liberalization since 1945 is responsible for an increase in U.S. annual incomes by $1 trillion to be highly exaggerated and should not be considered in discussions about trade policy.

“This number is far outside the bounds of any estimate of gains that one would obtain using standard economic models,” said Bivens. “They should be retired from public discussion.”

This new revelation follows his earlier analysis, in Marketing the Gains from Trade , of a second number that claims new trade agreements could add $500 billion (or $4,500 per household) to the American economy. Again, he found the numbers far too weak to be the basis of discussion about trade policy.

In both cases, these spurious numbers were generated by Bradford, Grieco, and Hufbauer for a 2004 study published by the Peterson Institute for International Economics. These authors claim that a review of several independent studies converges on the finding that trade liberalization increased U.S annual incomes by $1 trillion.  However, not a single one of the studies they reviewed argues this.

Further, these authors engage in a selective reading of evidence relevant to today’s debates over globalization. One of the highest quality studies reviewed by the authors shows that trade liberalization added only $9 per U.S. household since 1982. That is, since NAFTA was signed, the WTO was formed, and since the US granted China permanent normal trading relations, even the research surveyed by these authors seems to argue for very small benefits from trade liberalization.

Bivens gives a careful reading of the sourced reviewed by the authors and concludes that their claim cannot be sustained by the evidence.

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