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A Trade Deal Liberals Can Live With

Posted by New Leaders Council 4 Admin on March 20, 2015 at 4:43 PM

Originally published on Bloomberg View by Noah Smith on March 17, 2015. 

One of the bigger economic issues under debate right now is the Trans-Pacific Partnership (TPP), the multilateral trade deal that would include most countries in the Asia-Pacific region as well as the U.S. Many people both here and abroad are suspicious of trade deals, while economists usually support them. This time around, however, the dynamic is a little bit different -- the TPP is getting some pushback from left-leaning economists such as Paul Krugman and the Center for Economic and Policy Research’s Dean Baker.

Krugman’s point is that since U.S. trade is already pretty liberalized -- tariffs and other trade barriers are low -- the effect of further liberalization will be small. With only small gains to be had, he argues, passing the TPP isn’t the optimal use of President Barack Obama’s political capital. Baker’s argument is that since U.S. interest rates are still close to zero, trade deals will hurt the U.S. economy via Keynesian effects -- since aggregate demand is scarce, he says, trade is a zero-sum game.

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