The Economic Policy Institute’s (EPI) Robert Scott has issued a report on the early results of the U.S.-Korea trade agreement (KORUS). It’s not good for U.S. workers, who have already lost about 40,000 jobs because of the increasing trade deficit with Korea.
The report also exposes the flawed assumptions behind the myth that “free trade always creates jobs.” Debunking this myth is particularly important now, as the Obama administration is in negotiations for three new trade agreements: the Trans-Pacific Partnership (TPP) (with 11 countries that border the Pacific Ocean), the Trans-Atlantic Trade and Investment Partnership (TTIP) (with 27 countries in Europe) and the Trade in International Services Agreement (TISA) (with 46 countries around the world).
President Obama claimed in 2010 that KORUS would increase U.S. goods exports by “$10 billion to $11 billion,” supporting “50,000 American jobs from increased goods exports alone.” These numbers came from the U.S. International Trade Commission’s estimates. But the USITC and the White House overestimated the projected growth in exports from KORUS while neglecting the effect of imports and on the growing bilateral trade deficit. Scott writes:
In the year after KORUS took effect, the U.S. trade deficit with South Korea increased by $5.8 billion, costing more than 40,000 U.S. jobs. Most of the 40,000 jobs lost were good jobs in manufacturing.
As Scott also points out, this failure was not an isolated incident. In 1994, the Clinton administration told Americans that NAFTA would create 200,000 new jobs because of increased exports, but by 2010 growing trade deficits had eliminated 682,9000 U.S. jobs. More recently, the USITC study done for China’s entry into the World Trade Organization made “spectacularly unrealistic” forecasts of benefits for the U.S. economy. Instead, U.S. workers have seen 2.7 million jobs displaced, 2.1 million of them in manufacturing.
The USITC is continuing to make the same old mistakes. Its basic problem is that its model evaluates the likely effects of tariff changes, but skips over other important economic impacts, like changes investment rules or financial regulations. Thus, the USITC fails to adequately predict how the investment rules of a trade agreement can actually increase offshoring and outsourcing by firms, whose choices about where to produce have real world impacts on families and communities. Foreign investment in Mexico, for example, nearly tripled as a share of GDP in the years following NAFTA, and its exports to the U.S. skyrocketed. But the USITC failed to predict this outcome because its model failed to take investment effects into account.
Make no mistake: Other poor policy choices like the sequester, tax giveaways to corporations that offshore jobs and the failure to hold China accountable for currency manipulation are harming workers and killing jobs, too.
But if KORUS, NAFTA and China’s entry in the WTO are promoting outsourcing, job loss and wage suppression, why do America's working families continue to be told that ”free trade agreements” will create American jobs and be good for workers? It’s something to think about as President Obama pursues the TPP, the TTIP and the TISA.