Trade Agreements With Mexico And South Korea Turned Out To Be Disasters For US: So Why Pursue TPP And TAFTA/TTIP?

Tech Dirt – by Glyn Moody

Two massive trade agreements currently being negotiated — TPP and TAFTA/TTIP — could potentially affect most people on this planet, either directly or indirectly through the knock-on effects. Like all such agreements, they have been justified on the grounds that everyone wins: trade is boosted, prices drop, profits rise and jobs are created. That’s why it’s been hard to argue against TPP or TAFTA — after all, who doesn’t want all those things?  

But given their huge impact, and the fact that trade agreements are also used to impose a range of policies on countries that are certainly not in the public interest there — for example making it harder for generic drug manufacturers to offer low-cost medicines — it seems reasonable to ask what the evidence is that entering into these agreements really does deliver all or even some of those promised benefits.

An article in US News provides statistics that show that two major trade agreements — the North American Free Trade Agreement (NAFTA) and the South Korea-US Free Trade Agreement (KORUS) — have not only failed to deliver, but have been disastrous for the USAs regards NAFTA, for example, here are figures from a Reuters column it cites:

The United States ran a $1.6 billion trade surplus ($2.6 billion in today’s dollars) with Mexico in 1993, the year before NAFTA. Last year [2011], the United States ran a $64.5 billion deficit.

That might have been a one-off, were it not for the following facts about KORUS, reported here by the Economic Policy Insitute (EPI)

In the year after the agreement took effect (April 2012 to March 2013), U.S. domestic exports to South Korea (of goods made in the United States) fell $3.5 billion, compared with the same period in the previous year, a decline of 8.3 percent. In the same 12-month period, imports from South Korea (which the administration consistently declines to discuss) increased $2.3 billion, an increase of 4.0 percent, and the bilateral U.S. trade deficit with South Korea increased $5.8 billion, a whopping 39.8 percent.

But maybe the trade agreements are generating jobs at least. Nope. Here’s what happened with NAFTA:

Bill Clinton (1993) and his supporters claimed in the early 1990s that the North American Free Trade Agreement would create 200,000 new jobs through increased exports to Mexico. In fact, by 2010, growing trade deficits with Mexico had eliminated 682,900 U.S. jobs

Well, what about KORUS?

When the U.S.-Korea Free Trade Agreement was completed in 2010, President Obama said that it would increase U.S. goods exports by “$10 billion to $11 billion,” supporting “70,000 American jobs from increased goods exports alone”

Here’s what actually happened:

Using the president’s own formula relating changes in trade to jobs, the growth in the trade deficit with South Korea in the first year since KORUS took effect likely cost more than 40,000 U.S. jobs

So where does this leave TAFTA/TTIP? Well, the European Commission’s FAQ on the subject refers to some research it commissioned:

One of the studies on which the Commission’s impact assessment was based was an independent report commissioned by the EU from the London-based Centre for Economic Policy Research. The study, entitled ‘Reducing barriers to Transatlantic Trade’, outlines the economic effects of a for both the EU and the US.

It suggests the EU’s economy could benefit by €119 billion a year — equivalent to an extra €545 for a family of four in the EU. According to the study, the US economy could gain an extra €95 billion a year or €655 per American family.

But the EPI is doubtful:

A much more likely outcome, based on North American experience under NAFTA, is that production workers in all the member countries will suffer falling wages and job losses (Scott et al. 2006), while U.S. and EU investors will profit handsomely, reinforcing the rapidly rising share of profits in corporate and national income that has taken place over the last decade in the United States (Mishel 2013).

That also provides an explanation as to why the US government is so keen to push ahead with TPP and TAFTA/TTIP when all the available evidence suggests that both are likely to be harmful for the US economy overall. Despite that fact, certain influential groups still stand to profit “handsomely”, and therefore have lobbied the politicians hard to engage in such talks anyway.

Unfortunately, much of those profits will be paid for by losses incurred by ordinary members of the public through lower wages and unemployment caused by a new “race to the bottom” and increased outsourcing. These are precisely the people who, by an interesting coincidence, are never allowed to comment on or even see what is being negotiated when these agreements are being drawn up in their name. Strange that.

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