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Pacific Rim trade gap continues to expand

File photo: Barack Obama speaks during a meeting with agriculture and business leaders about the Trans-Pacific Partnership at the Department of Agriculture in Washington October 6, 2015.  At left is Victoria Espinel, CEO of The Software Alliance and at right is Bob Stallman, president of the American Farm Bureau.
Kevin Lamarque | Reuters
File photo: Barack Obama speaks during a meeting with agriculture and business leaders about the Trans-Pacific Partnership at the Department of Agriculture in Washington October 6, 2015. At left is Victoria Espinel, CEO of The Software Alliance and at right is Bob Stallman, president of the American Farm Bureau.

President Barack Obama signed a major free trade deal Monday between the U.S., Canada, Mexico and nine other Pacific countries. New data released Tuesday were a reminder of how imbalanced most of those trade relationships are.

America's monthly trade deficit rose nearly 16 percent in August, according to data from the Department of Commerce. That seasonally adjusted $48.3 billion brings the country's running trade deficit year to date to $354 billion for goods and services and more than $500 billion for goods alone.

The Trans-Pacific Partnership agreement is designed to remove barriers for American business abroad, including more than 18,000 tariffs on American goods in the participating countries, according to the administration. Six of those countries currently sell more to the U.S. than they buy. Overall, they account for $103 billion, or about 20 percent, of the nation's trade imbalance.

The deal is widely expected to boost American exports and real income, but its effect on the overall trade balance is contested.

A much-cited analysis by the nonpartisan Peterson Institute for International Economics found that the TPP deal will boost U.S. exports by $123 billion and real incomes by $77 billion a year by 2025. But that model assumes that the trade balance wouldn't change — that imports would grow at the same pace as exports.

The president's 2015 trade agenda strongly implies that agreements can improve trade imbalances. After all, America already has low barriers to imports, so any trade agreement would "disproportionately reduce other countries' barriers," according to the report.

"Despite running an overall trade deficit, the United States runs a goods and services surplus with our combined 20 FTA [free trade agreement] partners," the report said. "Our trade deficit, which has shrunk by a third since 2006, is comprised largely of the trade balance with our non-FTA partners."

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But the deficit isn't mentioned in the administration's objectives or benefit summaries for the TPP deal, so economists are left to argue about the impact. Economists at the Economic Policy Institute, a think tank associated with labor, argue that trade deals tend to increase the deficit and harm American workers — especially in manufacturing.

They point to the U.S.-Korea Free Trade Agreement in 2012, which has so far failed to live up to projected decreases in the U.S. trade balance with that country. Indeed, the Peterson Institute study suggests that agriculture and advanced sectors like financial services will benefit from the deal, while manufacturing would become more import-driven as countries like Vietnam develop their own manufacturing sectors.

The Office of the United States Trade Representative did not respond to The Big Crunch's requests for estimates on how the TPP deal might increase or decrease the deficit. That may be simply because, while some trade partners will necessarily see a net surplus and others will see a net deficit in any trading relationship, that's not the standard by which trade deals should be judged, as Theodore Moran, another Peterson Institute researcher, pointed out.

"Of course the United States should be forceful in trade negotiations to remove obstacles to the penetration of U.S. goods and services into Japan or Malaysia or other TPP member states," wrote Moran. "But this is because the U.S. government wants the U.S. economy to operate with high productivity, not because this will affect the U.S. trade deficit."

While the overall trade balance is still better than it was immediately before the recession, the gap between imports and exports in the Pacific Rim region has been widening as those countries develop. As more details of the deal come to light, the numbers will come under far more scrutiny when the deal comes before Congress in 2016.