[CTC] Dean Baker on US Canada trade agreement

[Alan Barber]

cepr.net/blogs/beat-the-press/stronger-drug-patents-in-new-nafta-to-
cost-u-s-manufacturing-workers-jobs
The new trade agreement[1] with Canada that the Trump administration
announced yesterday has rules on drugs patents and related protections
which are likely to cost the jobs of U.S. manufacturing workers. The
deal includes a number of provisions that are explicitly designed to
raise drug prices in Canada.These provisions include a requirement of a period of ten years of
marketing exclusivity for biotech drugs before a biosimilar is allowed
to enter the market. The deal also requires Canada to grant a period of
exclusivity for existing drugs when new uses are developed. In
addition, it requires that the period of patent monopoly be extended
beyond 20 years when there have been "unreasonable" delays in the
granting of the patent.The intended purpose of these provisions is clearly to make Canada pay
more money to U.S. drug companies. Insofar as it achieves this result,
it will mean that the United States has a larger surplus on intellectual
products. That would imply a larger trade deficit in manufactured goods,
and therefore less employment in U.S. manufacturing.A basic accounting identity in economics is that the overall U.S. trade
deficit is equal to the gap between domestic savings and domestic
investment. This identity means that if this domestic balance is not
changed, the overall trade deficit is not changed.When the U.S. economy is below its potential level of output, a lower
trade deficit can lead to more employment and income, which typically
also leads to more domestic savings. However, economists typically
analyze trade as though the economy is always at or near its potential
level of output. If this is the case, the trade deficit is fixed by the
balance of domestic investment and savings. In that case, if the trade
surplus rises in one area, like intellectual products, then the trade
deficit must rise to offset this increase in other areas, like
manufactured goods.The mechanism through which this would occur is, other things equal,
more licensing payments to Pfizer, Merck, and other U.S. companies for
their drugs will mean a rise in the value of the U.S. dollar against the
Canadian dollar. If the U.S. dollar increases in price relative to
Canada's dollar, it makes goods and services produced in the United
States relatively less competitive, leading to a larger trade deficit in
areas other than prescription drugs.
--
Alan Barber
Director of Domestic Policy
Center for Economic and Policy Research
202-293-5380 x115 | 202-486-6180
barber at cepr.net



Links:

  1. https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/20%20Intellectual%20Property.pdf
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