Conflicting estimates of the benefits of freer trade with the United States

This report from UK think tank Civitas looks at the different estimates from the European Commission vs the Department for International Trade.

The Trade Secretary is reported to be prepared to rip up the Trade Department’s rulebooks on assessing deals in an attempt to improve how it measures the economic benefits of its post-Brexit ‘Global Britain’ project. Notably, when the UK struck its first major post-Brexit trade pact with Japan, critics were quick to point out it would seemingly boost UK GDP by only 0.07%. A broader debate has already begun to question why there have been such conflicting (under)estimates of the benefits of post-Brexit freer trade with other countries across the globe. Focusing on UK-US trade, this report compares the ‘scoping assessment’ of the proposed UK-US trade agreement developed by the Department for International Trade (DIT) in March with a similar 2017 exercise conducted by a research consultancy for the European Commission during the Transatlantic Trade & Investment Partnership (TTIP) negotiations. The author, Michael Burrage, highlights that – in contrasting their two levels of negotiating ambition – both negotiating teams aimed to estimate the future impact of freer trade with the US. Each assessment ended with startlingly divergent expectations of its impact on UK GDP, exports, imports and wages: Projected GDP increases: The DIT estimates an increase in UK GDP of 0.16% over 15 years, whereas Ecorys estimated a three times greater increase of 0.5% from the first year of full implementation, and every year thereafter. GDP increase over 15 years: The DIT’s forecast amounts to an increase in UK GDP of £3.4bn in 15 years, while Ecorys’ anticipates an increase of £370.6bn by 2035, which is more than 100 times greater. “If that is indeed the only impact on UK GDP the DIT modellers expect, then the divergence from the Ecorys and European Commission expectation would indeed be vast, and the impact on UK GDP truly minuscule, indeed scarcely noticeable.” The “…expectation of the benefit of TTIP for the UK GDP is therefore more than 100 times larger than DIT’s expectation of the benefit of UK-US FTA, the difference between them being £367.2bn.” Exports to the US: DIT estimated exports to the US would rise by 7.7% but Ecorys by 17.85%, more than twice as much. Real wages in UK: Similarly, DIT estimated real wages in UK would rise by 0.2% and Ecorys again estimated more than double that amount by 0.5%. Michael Burrage urges “a rigorous re-evaluation of the DIT scoping assessment”, suggesting the Department publish an update to explain why their expectations of the likely benefits for the UK of a free trade agreement with the US differed from those expected by European Commission estimates over three years ago. The report finds that UK-US FTA is of such importance for the future of UK trade policy that it deserves a second scoping assessment.

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