The High Cost of American Free Trade Deals

While it certainly hasn't been getting headlines like the 1988 free trade deal (FTA) between Canada and the United States and the 1994 North American Free Trade Agreement (NAFTA), the Obama Administration is doing its best to push the Trans-Pacific Partnership, a "...21st century trade agreement that will boost U.S. economic growth, support American jobs, and grow Made-in-America exports to some of the most dynamic and fastest growing countries in the world."  Partners to the TPP include Australia, Brunei Darussalam, Canada, Chile, Japan Malaysia, New Zealand, Singapore, Vietnam and of course, the United States. 

In its most recent attempt to spoon-feed us the benefits of the TPP, the U.S. Department of the Treasury released a letter from all ten former U.S. Secretaries of the Treasury that called for Congress to swiftly pass the "Bipartisan Congressional Trade Priorities and Accountability Act of 2015" aka the Trade Promotion Authority (TPA) that was introduced to Congress in mid-April 2015.  The TPA, or what was once known as Fast Tracking, a power that has only been used 16 times in America's history, will provide trade negotiators with the unfettered ability to complete trade initiatives that will "advance U.S. economic and geopolitical interests.".  The implementation of TPA will prevent meaningful modifications of any trade deals by Congress and eliminates the possibility of public scrutiny of any deals reached.  

Here is the text of the letter:

"April 21, 2015

The Honorable John Boehner


Speaker 
House of Representatives


The Honorable Mitchell McConnell


Majority Leader
 United States Senate

The Honorable Nancy Pelosi


Minority Leader 
House of Representatives




The Honorable Harry Reid


Minority Leader
 United States Senate


Dear Speaker Boehner, Majority Leader McConnell, Minority Leader Pelosi and Minority Leader Reid:

We write to express support for Congressional renewal of Trade Promotion Authority (TPA). Our support for open trade agreements is based on a simple premise: expanding the size of the market where American goods and services can compete on a level playing field is good for American workers and their families. Expanded international trade means more American jobs and higher American incomes. It means greater access for American businesses to markets and consumers around the world, and it means lower prices for American families here at home. International trade, and the trade agreements that enable it, is happening and will continue to happen whether or not the United States participates. Our choice is to give American businesses and innovators the opportunity to share in the advantages those agreements provide or to remain outside the agreements and allow our competitors to benefit alone.

The enactment of TPA will directly improve our ability to complete trade initiatives that advance U.S. economic and geopolitical interests. The most immediate agreements are the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The TPP will support the growth of U.S. exports to a fast-growing region that includes countries that represent nearly 40 percent of the global economy, and will bolster the strategic role of the United States as an economic leader within the Asia-Pacific region. The TTIP offers an opportunity to further cement our strong trading relationship with the European Union.

We agree that no country should use an undervalued currency to gain an unfair competitive advantage and grow its exports. The United States should continue to use multilateral and international mechanisms and diplomacy to prevent unfair currency manipulation. While the desirability of including currency manipulation in trade agreements can be debated, as a practical matter, it is impossible to get agreement on provisions that subject currency manipulation to trade sanctions in a manner that both the United States and other countries would find acceptable. Because we believe an agreement is strongly in the economic and security interests of the United States, we respectfully urge Congress to approve Trade Promotion Authority.

Sincerely,

Timothy F. Geithner

Henry M. Paulson, Jr.

John W. Snow

Paul H. O'Neill

Lawrence H. Summers

Robert E. Rubin

Nicholas F. Brady

James A. Baker, III

W. Michael Blumenthal

George P. Shultz"

By having these illustrious individuals as promoters of freer trade for America, all opponents to opening up trade channels are marginalized.

Let's look at a couple of examples of the high cost of previous free trade deals to American workers.

1.) North American Free Trade Agreement or NAFTA:  Back in 1993, former President Bill Clinton claimed that NAFTA would create an export boom to Mexico.  As well, 200,000 American jobs would be created in the first year and a million jobs would be created in the first five years of the deal.  According to research by the Economic Policy Institute (EPI), NAFTA's legacy was job losses for American workers as shown on this graphic which shows the growing trade deficit between the United States and Mexico:

By 2010, EPI estimates that trade deficits with Mexico had eliminated 682,000 U.S. jobs, mainly good-paying jobs in the manufacturing sector.  According to Public Citizen, twenty years after it was signed, NAFTA has contributed to downward pressure on U.S. wages and wage growth and that reductions in consumer goods prices that have materialized as a result of the deal have not been sufficient to offset the losses to middle-class wages under NAFTA.  On the Mexican side of the deal, real wages in Mexico have fallen below pre-NAFTA levels as price increases for basic goods have outstripped wage increases.  Over half of Mexico's population still falls below the poverty line.

Here is a look at a two of the specific corporate promises that were made before NAFTA was signed and what actually happened:

So much for those promises!

2.) United States - Korea Free Trade Deal or KORUS:  This deal, which was brought into force on March 15, 2012, promised  "...countless new opportunities for U.S. exporters to sell more Made-in-America goods, services, and agricultural products to Korean customers – and to support more good jobs here at home.".  The U.S. Trade Representative estimated that the reduction in Korean tariffs would add $10 billion to $12 billion to the U.S. GDP annually and around $10 billion in exports to Korea.  The Obama Administration estimated that the agreement would support 70,000 American jobs from exports alone.  Things do not appear to have worked out quite as optimistically.  In the year after the agreement took effect, U.S. domestic exports to Korea fell $3.5 billion compared to the same period a year earlier and imports increased by $2.3 billion, pushing the bilateral U.S. trade deficit with Korea up by $5.8 billion or 39.8 percent.  

Here is a graphic showing what has happened to U.S. exports to Korea, its imports from Korea and America's growing trade deficit with Korea since 2000:

As well, according to the Economic Policy Institute, instead of the 70,000 jobs promised with the implementation of KORUS, the free trade deal has cost the American economy 60,000 lost jobs in its first two years. 

Obviously, we should be concerned about the implementation of further free trade agreements that result in the destruction of jobs.  While the deals are being sold to us on the basis of export growth, quite clearly, the trends in trade deficit numbers show that freer trade does not always mean higher levels of exports from America to outside markets as shown on this chart:

In fact,the data would seem to show us that the exact opposite is occurring and that we are importing far more from our free trade partners than they are importing from us.  Data shows that the United States now has an annual goods trade deficit of $177 billion with its 20 free-trade partners and, that over the past decade, U.S. export growth to countries that are not free-trade partners exceeded the growth of exports to America's free-trade partners by 24 percent.

This is why we have to be very careful when we hear the Obama Administration and the U.S. Chamber of Commerce touting the benefits of the Trans-Pacific Partnership.   The impact of the TPP will still be felt long after President Obama has left office.  His quest to get fast-track trade authority to sign and enter into the TPP before Congress votes to approve its terms is just asking for even more pain for America's beleaguered middle class workers.  Remember, it is thanks to Fast Tracking that the United States ended up with NAFTA.  While most of us are not against freer trade, we are against freer trade that is unfair, particularly to our domestic workforce.