For the United States the real income impact of repealing its FTAs is about the same as the impact
of a reversion to Uruguay Round bound tariff rates, roughly $13 billion. The annual US real income
impact of reverting to Tokyo Round bound rates is estimated at roughly $18 billion. Again, we emphasize
that all these estimates reflect only the efficiency losses from relocating the workforce to less productive
sectors. Many other channels are ignored in the CGE calculations.
In terms of world real income, the terms-of-trade effects cancel out because one country’s terms-
of-trade gain is another country’s loss. Therefore when considering the loss to world real income under
each of the six scenarios, only efficiency losses matter. The largest impact on world real income comes
from NTB reversion ($220 billion), while the impact of repealing US FTAs is the smallest ($4 billion).
The global impact of reverting to Tokyo Round bound rates in roughly $150 billion, while the impact
of reverting to Uruguay Round bound rates is roughly half that, at $75 billion. The global impact of
reverting to 1980 transportation costs is roughly $135 billion.
COMPARING PARTIAL AND GENERAL EQUILIBRIUM RESULTS
In rough terms, our estimates of the impact on trade under the partial equilibrium analysis of the six
scenarios are about half that of the general equilibrium analysis (table 20). There are two main reasons:
Unlike the partial calculations, the general equilibrium calculations reflect myriad indirect effects; and the
partial equilibrium analysis considers only merchandise goods while the general analysis includes goods
and services trade.
By contrast, the estimates of the impact on GDP under the partial equilibrium analysis far exceed
the impacts on real income under the general equilibrium analysis. The difference reflects channels by
which trade increases real income. The general equilibrium analysis includes only static efficiency effects
(comparative advantage gained or lost by shifting the workforce) and terms-of-trade effects. The partial
equilibrium analysis, which follows from the OECD (2003) approach, captures a much wider set of
trade benefits. These multiple channels are detailed by Bradford, Hufbauer, and Grieco (2006): They
include comparative advantage gains as well as benefits like increased productivity brought on by stiffer
competition, better intermediate inputs, “just in time” production, and greater product variety.
SOURCES OF TRADE GROWTH
US trade has grown at a tremendous rate since 1980. But what are the sources of growth? Our analysis
roughly evaluates the sources of trade growth since 1980. It shows what the world would look like if
trade policy or transportation costs reverted to prior levels, but looking counterfactually, this method also
shows the benefit of policy liberalization and transportation costs declines.
Scenario 2, the reversion of current tariffs to Tokyo Round bound rates, indicates the impact of
13