CPA Briefing Paper: Why Economic Forecasts of the Effects of Trade Action Are Consistently Wrong

Executive Summary

From the adoption of NAFTA in 1994, through the Trump administration’s 2018 tariffs, economic forecasts have consistently failed to predict the impacts of free trade agreements and other trade actions. As this paper documents, economic forecasts have consistently proven wrong regarding economic growth, trade volumes, and employment. We look at four distinct causes of these poor forecasts, including the exclusion of positive effects from reducing trade as well as a tendency toward generalizations that overlook real-world conditions. Finally, we look at how CPA’s research team is attempting to overcome these issues by modifying economic models to incorporate the lessons of recent decades.

When Chinese Networks Spy On Their Users

On April 30th, global wireless telecom company Vodafone went public with a statement to Bloomberg News saying that the London-based wireless provider found “hidden backdoors,” i.e. multiple security flaws in the wireless network supplied by Chinese network provider Huawei. The problem first surfaced in 2011 when Vodafone engineers found “backdoors” in Huawei broadband gateway (home router) equipment in their Italian network. Backdoors are software access points which allow the network manager (Huawei in this case), or third parties like hackers or spies, to get into the network and potentially see the private data traffic of millions of users.  

The US is the world leader in 5G; We’re just missing one piece

There is widespread concern in the US, ranging from cable TV shows right up to the White House, that the US is losing the race for 5G wireless networks. The concern is right, but the analysis is wrong. The US is the world leader in 5G networks. We are missing just one piece: the systems integrator. A careful examination of the industry shows how strong our leadership is, and that it would not be hard for the US to provide that one missing piece. 

Huawei’s Employee Bonus Program For Stealing Technology

On January 16^th, a grand jury in the US District Court in Seattle, Washington indicted Chinese telecom equipment maker Huawei for theft of trade secrets and attempting to corruptly obstruct a civil lawsuit. The indictment contains an extraordinary amount of detail on Huawei’s industrial espionage practices and its theft of intellectual property from US wireless carrier T-Mobile USA. This shocking 28-page document amounts to a how-to guide for those seeking to steal intellectual property from their best customers. 

GM Cutbacks Due to Offshoring, Not Tariffs

General Motors is having a very good year in 2018. That’s right. You read that right, a good year. Maybe even an excellent year. In Q3, its earnings performance knocked it out of the park. Wall Street was expecting earnings of $1.25 and the carmaker delivered $1.87. On the Oct. 31^st conference call with investors, CEO Mary Barra (pictured) was bullish on the full-year outturn, forecasting the company’s outcome this way: “We expect full-year EPS [earnings per share] to be at the top of our previously-communicated guidance range with potential for further upside..”

But, if you read the news, you might ask: didn’t GM announce the shutting of five auto plants in November, and the likely layoff of up to 14,000 workers in the US and Canada due to the tariffs? That’s drastic surgery. Isn’t GM hurting?

Top Five Cases of Huawei IP Theft and Patent Infringement

Last week, Canadian authorities arrested the Chief Financial Officer of Huawei, Sabrina Meng Wanzhou. The US government alleges that she was involved in a plot to circumvent US sanctions on Iran by using a dummy company, secretly owned by Huawei, to sell networking equipment to Iran. 

Some of the US and European press have labeled Huawei a Chinese “national hero,” praising the company as one of China’s top technology companies. The reality is that Huawei has been a leading player in stealing western technology by blatantly using it without paying royalties for patents. Huawei also hires western engineers to gain access to their confidential knowledge, and often directs engineers to steal documents from US and other western technology companies. 

The Tariffs Are Working

Since January, the Trump administration has implemented five major tariff policies, on the solar panel, washing machine, steel, and aluminum industries, as well as the so-called Section 301 tariffs affecting $250 billion worth of Chinese imports, chiefly in intermediate manufactured goods. 

And so far, the evidence is that the tariffs are working. Economic growth is up, inflation is under control, many of the tariffed industries are enjoying strong recoveries in output, profits, and employment. And as optimism spreads across manufacturing, other manufacturing sectors are also enjoying better growth than they’ve seen in years.