New Paper Finds Gains from Multilateral Trade Liberalization to Be 'Extremely Small'

A new paper from the Center for Economic and Policy Research (CEPR) examines recent IMF research on gains from multilateral trade liberalization, as under the WTO. This research shows that gains would be equal only to about 0.014 percent of consumption, or about 43 cents per person, per month, in the United States. The CEPR paper, "The Gains from Trade in a New Model from the IMF: Still Very Small" by David Rosnick, examines modeling by the IMF, which claims to find that WTO agreements to liberalize trade are worth more than previously thought. CEPR's paper shows that in fact the gains are relatively small.

"This paper again raises the question of whether the trade-offs that workers and consumers make in so many areas--including lowered safety and environmental standards, higher prices for pharmaceuticals and other patent-protected goods, and the undermining of local and national laws--are worth it considering how paltry the gains are," economist and lead author of the paper David Rosnick said. "I don't think most Americans would choose to sacrifice so much in the name of lowered trade barriers just for 43 cents a month more in their pockets."

The IMF model focuses on liberalization under the WTO, but if applied to the proposed Trans-Pacific Partnership, the results would be similarly small.

The IMF model examines the impacts each of unilateral, bilateral and multilateral trade liberalization. The modeling shows that countries can be worse off when they unilaterally lower protective trade barriers, as countries are often pressured to do in negotiations with the U.S. or other developed countries. Negotiations at the WTO and in other multilateral fora are also sometimes lopsided, such as WTO rules that prohibit various agricultural supports in developing countries even while large subsidies in developed countries are maintained.

The CEPR paper shows that in the modeling by the IMF, which takes into account the trade-off between labor and leisure when full employment is assumed, workers must choose to work more if production (to facilitate more trade) increases. This has consequences that are not considered in the IMF's modeling, including the implications for climate change from increased production and consumption, versus increased leisure time.

The paper notes that perhaps the most significant result of the IMF model is that it shows that even when there is market power in international trade, the gains that can occur with even multilateral trade liberalization are very small.

"The IMF has a long history of supporting policies of trade liberalization," Rosnick said. "Yet the gains from multilateral liberalization are quite small, even according to the IMF paper's own modeling."