"For all its self-image as a place where doing business comes first, America has often found trade deals frightening. This is partly because its continent-spanning economy is more self-contained than many people realise: imports and exports of goods amount to 23% of GDP, compared with 26% for the EU or 46% for China, so the constituency for reducing tariffs and opening markets is relatively small."
And what is at stake in these proposed agreements?
Perhaps US legislators are dubious about free trade agreements (FTAs) because they rarely deliver what was promised and the US, as a nation, usually comes out a loser. Robert E. Scott presents possible explanations in an article for the Economic Policy Institute: The Trans-Pacific Partnership Could Be Much Worse Than the Over-Hyped Korea Deal.
Scott blames shoddy economics for much of the error in predicting trade outcomes. The U.S. International Trade Commission (USITC) and most economists focus on tariff reduction as the dominant feature of free trade. Perhaps this is because it is something they have a hope of measuring.
In a separate study of NAFTA, Scott pointed out that when NAFTA went into effect the trade balance with Mexico was very small, but by 2010 it had grown to a negative $97.2 billion. At the time it was predicted that lowering tariffs on goods would increase exports to Mexico and create about 200,000 new jobs in the US. What actually happened is that US manufacturers, and those of other countries, took advantage of cheap labor in Mexico and low tariffs on Mexico’s exports (thank you NAFTA) to move manufacturing operations to Mexico. The net result was a large flow of exports into the US and, by Scott’s estimate, the loss of 682,900 US jobs. It is difficult to believe that the US did not see this coming.
Other economists would argue with Scott’s numbers, but whatever the actual number lost, Scott provides a useful rule of thumb for evaluating trade agreements.
When it came to negotiating the U.S.-Korea Free Trade Agreement (KORUS), one might have expected that a wiser approach would be taken. Scott indicates that preliminary data suggests that the US has been had again.
It was claimed that KORUS would support 70,000 new jobs through increased exports. Instead, exports have fallen, imports have risen, and Scott suggests we can expect to lose at least 40,000 jobs.
Free trade advocates such as The Economist claim that the world will be $600 billion poorer each year if the US does not complete the two deals being negotiated with European and Asian nations. Trade doesn’t make the world wealthier, it makes individuals wealthier. Trade is good at creating wealth, but poor at distributing it. The best way to distribute wealth is by creating jobs for those who do not have one. That must be our primary goal.
Scott’s advice is sound. You should never make a deal in which you expect to lose money.
And never enter into a deal where you can expect to be the only honest participant.