Krugman: Not Down With T.P.P.

Naughty Curmudgeony by nature, Paul Krugman - whose Nobel prize is mainly due to his important work in international trade theory - disses the Trans-Pacific Partnership:

I’m thumbs down. I don’t think the proposal is likely to be the terrible, worker-destroying pact some progressives assert, but it doesn’t look like a good thing either for the world or for the United States, and you have to wonder why the Obama administration, in particular, would consider devoting any political capital to getting this through.

As Krugman points out, the importance of trade agreements is often overstated:

[A]lmost everyone exaggerates the importance of trade policy. In part, I believe, this reflects globaloney: talking about international trade sounds glamorous and forward-thinking, so everyone wants to make that the centerpiece of their remarks. (The same thing happens to an even greater extent when international money issues like the dollar’s role as a reserve currency crop up.)

While, as a professor of international economics, I have a vested interest in promoting "globaloney," I think he's right about this.  Although international trade certainly has a substantial impact on the US economy, the effects of these trade agreements are pretty marginal.

Another thing he points out is that, since tariffs are already low, the substance of trade agreements isn't really about trade, per se, but about other (arguably) trade-related issues, such as intellectual property protection.  As a net exporter of intellectual property-intensive goods, the US has a mercantilist interest in strong IP protection, but Krugman has an appropriate economist's skepticism of such arguments:

Well, we should never forget that in a direct sense, protecting intellectual property means creating a monopoly – letting the holders of a patent or copyright charge a price for something (the use of knowledge) that has a zero social marginal cost. In that direct sense this introduces a distortion that makes the world a bit poorer.

Tyler Cowen points out a big non-trade related argument for the TPP that Krugman does not mention:

either this deal happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well. - See more at: http://marginalrevolution.com/marginalrevolution/2015/03/why-paul-krugman-is-wrong-to-oppose-the-trans-pacific-partnership.html#sthash.b5KbTNCP.dpuf

Either this deal happens on American terms or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons, we prefer the former and the pragmatic side of President Obama understands this pretty well.

Brad DeLong also responds with a set of counterarguments, including:

Paul Krugman says that the potential net gains from freer trade in services and (secondarily) agriculture as estimated by Petri, Plummer and Zhai of 0.5% of GDP “seem high to him”. Suppose that they are half that. In a Pacific region whose GDP is now approaching $30 trillion/year, that is $75 billion/year. Capitalize that at 4%/year and we get a net addition to world wealth of $3 trillion. That is indeed a very small number relative to the wealth of the world both now and discounted into the future. But that is a rather large number compared to other things the U.S. government might do this year. So why not grab for it?

Of course, we have yet to actually get a deal...

Update (3/12): At the Washington Post, Autor, Dorn and Hanson argue for the TPP.

either this deal happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well. - See more at: http://marginalrevolution.com/marginalrevolution/2015/03/why-paul-krugman-is-wrong-to-oppose-the-trans-pacific-partnership.html#sthash.b5KbTNCP.dpuf

either this deal happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well. - See more at: http://marginalrevolution.com/marginalrevolution/2015/03/why-paul-krugman-is-wrong-to-oppose-the-trans-pacific-partnership.html#sthash.b5KbTNCP.dpuf