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Trade Deals Sound Nice But…

President Obama pushed through long-pending trade agreements with South Korea, Panama, and Colombia yesterday. The deals have received mixed reviews; some labor leaders criticize say it will kill thousands of American jobs while American exporters cheered the move, saying it will increase U.S. exports by $12 billion or more per year. Yet, by looking at the whole picture, it is hard to see these trade agreements making any noticeable difference to our stuttering economy.

On the one hand, American exports, will increase as a result of the deal. From the Washington Post:

A variety of U.S. industries are expected to benefit from the agreements. Producers of beef, dairy, pork and poultry products, chemicals, and plastics are all likely to increase exports to Korea. The banking and financial services industries could also be big winners, analysts said, benefiting from relaxed regulations and rules relating to foreign investment…

Overall, the trade pacts with South Korea, Panama and Colombia could increase U.S. exports of goods by $12 billion or more a year. American companies will also have an easier time selling services in those countries, making the deals yet more advantageous.

But these benefits to our export economy will be offset by increased imports:

Overall, the agreement is expected to increase imports into the United States by as much as $7 billion, with the textile industry potentially being hardest hit…

Richard Trumka, president of the AFL-CIO, called the deals “lousy” in a speech in Washington this month.

Trumka asked: “Should we say yes to the Korea [pact], which will destroy 159,000 U.S. jobs? Should we approve an agreement with Colombia, where 51 trade unionists were assassinated last year? Should we trade away even more jobs to Panama, a country that routinely tramples workers’ rights and shelters money launderers and corporate tax dodgers?”

Overall, the net effect of these deals (with the partial exception of the South Korea agreement) will be small.  But even free traders are less than enthusiastic.  Experienced trade economists, like TAI blogger and economics guru Jagdish Bhagwati, say bilateral trade agreements like these are counterproductive: they distort global trade and reduce the pressure on governments to sign global agreements.

The reality is that the free trade agenda propounded by the American establishment over the last twenty years has reached a dead end.  The death of Doha is much more significant than a US-Ruritanian free trade agreement.  Both public and business support for an aggressive push on liberalizing global trade has largely evaporated.  The low hanging fruit has been picked, and nobody wants to go get a ladder to harvest the stuff at the top of the tree.

That is too bad; there are some juicy treats high in the tree — like agreements on agriculture.  But for now, the WTO-based approach to trade has come to a halt, and the bilateral route has, at best, limited potential.

Things may change when economic growth kicks in again, but even then some rethinking is needed.  The world will continue to need trade liberalization far into the future, but Americans have not spent enough time developing a trade strategy that makes sense to voters at home — and can win agreement from key partners overseas.

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  • Brock

    There’s a second benefit to free trade agreements besides increased exports, and that’s lower prices for consumers of imports. Yes, we increase imports by $7 billion, but that’s because we used to spend EVEN MORE than $7 billion on goods produced internally.

    That savings can then be turned into lower prices for consumers or increased profits or investment for American companies that switch to imports. Voila! Economic growth.

  • Toni

    If free trade with Colombia and Korea is so unimportant, how come the EU already has FTAs with them? Along with 30 other countries, including economic pipsqueaks Albania and Tunisia. Why is the EU negotiating FTAs with nine more countries and in talks with Vietnam and Central America?

    Besides the import benefits Brock cities, there is also the incalculable intangible benefit of mutual cultural understanding.

    Asking Richard Trumka about free trade agreements is like asking Ford how many more OSHA regulations it needs.

  • Luke Lea

    Though it will make little difference in practice, coming on top of China, the problem with this deal is purely one of principle. It shows we have learned nothing and forgotten nothing since passing Nafta and Gatt. Shame on our governing elites. Off with their heads.

  • Luke Lea

    Less there be a any mistake I meant “off with their heads” figuratively not literally: as in removing these people as the heads of our universities, corporations, foundations, and public institutions.

    Meanwhile Walter might consider this thoughtful analysis of growing inequality in the new global economy. That guy is one of the smartest around in my opinion. But then so is Aldair Turner.

    And for what it’s worth here is my two cents on a piece in Naked Capitalism about making labor unions a productive force in our society today:

    “We need a labor party — a dues-paying, national political party representing the people who make their livings with their hands and their feet. Industrial and trade unions, to say nothing of public-employee unions, are inimical to the interests of working people as a class and should be condemned. Wage subsidies financed by a graduated expenditure tax should be the policy goal. Compensation for the damage done to hourly wage workers by the elite trade and immigration policies coming out of Washington the justification. We also need to rewrite our wage and hour laws to reflect the technological progress of the past fifty years. The six hour day for two-earner families is not an unreasonable demand. Organize.”

  • Luke Lea

    Sorry about that first broken link in my comment above. It was supposed to go to this essay by Noriel Roubini:

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