The U.S.-South Korea Free Trade Agreement (often called KORUS) is the largest trade deal of its kind since the North American Free Trade Agreement (NAFTA), but it will soon be outstripped by the pending Trans-Pacific Partnership (TPP) Free Trade Agreement. The Economic Policy Institute estimated that the KORUS would displace about 159,000 U.S. jobs—mostly in manufacturing. The Office of the United States Trade Representative calls the KORUS a “model for trade agreements for the rest of the region,” but the numbers tell a different story.
In July, the Economic Policy Institute’s (EPI) Robert Scott issued a report on the early results of the KORUS. The news wasn’t 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 U.S. is in negotiations for three new trade agreements: the 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).
Scott concluded that, 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, mostly in manufacturing, even though the predictions were increased exports and job creation.
As Scott also points out, this failure was not an isolated incident—similar overblown predictions of economic success came during the NAFTA and China-WTO debates. But the USITC, which make the predictions, uses a flawed model. 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.
Of course, 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 is increasing our trade deficit and killing jobs, our elected officials need to think carefully about what is good for working families as the administration negotiates the TPP, the TTIP and the TISA.