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Trade Agreements: Impact on the U.S. Economy
LIBRARY OF CONGRESS WASHINGTON DC CONGRESSIONAL RESEARCH SERVICE
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The United States is in the process of considering a number of trade agreements, including the recently announced Trans-Pacific Partnership Trade Agreement. The Congress also may address the issue of trade promotion authority, which expired on July 1, 2007. The various trade agreements range from bilateral trade agreements with countries that account for meager shares of U.S. trade to multilateral negotiations that could affect large numbers of U.S. businesses. During this process, Congress will be presented with an array of data estimating the impact of trade agreements on the economy, or on a particular segment of it. An important policy tool that can assist Congress in assessing the value and the impact of trade agreements is represented by sophisticated models of the economy that are capable of simulating changes in economic conditions. These models are particularly helpful in estimating the effects of trade liberalization in such sectors as agriculture and manufacturing where the barriers to trade are identifiable and subject to quantifiable estimation. Barriers to trade in services, however, are proving to be more difficult to identify and to quantify in an economic model. The models are highly sensitive to the assumptions that are used to establish the parameters of the model and they are hampered by a serious lack of comprehensive data in the services sector. Nevertheless, the models do provide insight into the magnitude of the economic effects that may occur across economic sectors as a result of trade liberalization. These insights are especially helpful in identifying sectors expected to experience the greatest adjustment costs and where opposition to trade agreements is likely to occur. This report examines the major features of economic models being used to estimate the effects of trade agreements. It assesses the strengths and weaknesses of the models as an aid in helping Congress evaluate the economic impact of trade agreements on the U.S. economy.
APPROVED FOR PUBLIC RELEASE