Free Trade Agreements

Free Trade Agreements Don’t Kill Jobs

by Ryan Young on May 4, 2011

in Economy, International, Trade

Trade is going to be a hot issue this summer. Pending agreements with Panama, Colombia, and South Korea might finally pass. Opponents of liberalization are already on the attack.

My colleague Jacque Otto already covered the creative destruction defense of trade today. Over at the Daily Caller, I look at employment data and find out that the labor force has grown by 23 million people since NAFTA passed. Doesn’t sound like a job-killer, does it?

Just as trade doesn’t kill jobs on net, neither does it create them on net. The real advantage of trade is that it allows people to specialize and become more productive. That is how economic growth happens:

When governments lower trade barriers, they allow more people to exchange and to work together. In economics jargon, the size of the relevant market gets bigger. And the bigger the relevant market, the more people can specialize.

Readers familiar with Adam Smith will recognize this as his division of labor. Everyone knows that specialized workers are more productive than jacks of all trades. That’s why Henry Ford’s assembly lines were so much more productive than his competitors’. The same number of people could suddenly produce more cars in less time, because they had a more specialized division of labor.

Workers didn’t have to waste time switching from one task to another. They got very good at their tasks. And because they knew their jobs so well, they were better able to come up with new, better ways of doing them. Rising productivity is how an economy grows. Prosperity doesn’t depend on the number of jobs. It depends on how much stuff workers can create.

 

Pressure Mounts for Three Free Trade Agreements to be Submitted

by Fran Smith on March 10, 2011

in Agenda for Congress, International, Trade

Bi-partisan pressure mounts for the Obama administration to move on long-pending free trade agreements (FTAs). At Senate Finance Committee hearings yesterday on the trade agenda, both Chairman Max Baucus (D-Mont.) and Ranking Member Sen. Orrin Hatch (R-Utah) gave the Obama administration a hard time on not moving on pending trade pacts as U.S. Trade Representative (USTR) Ron Kirk testified before the full committee.

Sen. Hatch took a particularly tough line in his questioning. He noted that while the Obama administration is prepared to submit the U.S.-Korea FTA, he questioned why it has dragged its feet on setting any definite timetable for considering the pending free trade agreements with Colombia and Panama. Both trade pacts have been negotiated and re-negotiated for several years now, and yet the administration still claims there are still some outstanding issues that need to be resolved, mainly relating to labor unions.

Sen. John Thune (R-S.D.) also expressed concern about the pace with which these agreements are being submitted to Congress. According to USTR Kirk, the U.S.-Korea FTA is ready for technical drafting and submission to Congress, but the Colombia and Panama FTAs don’t have clear timetables for congressional consideration. Sen. Thune asked what further changes the president wants in the agreements and questioned whether U.S. credibility about future agreements will be hurt if more revisions are required after the FTAs have been negotiated and signed.  He said, “A deal with the U.S. ought to be a deal.”

In response, Kirk said that “a vast majority of people in the U.S. don’t believe in the wisdom of our trade policy” and we have to “keep faith with American workers.” He noted that the Korea trade pact is ready, and Congress should move on that, while the other two agreements are moving forward and should be ready this year.

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House Republicans Push for Fast Action on Three Pending Trade Pacts

by Fran Smith on March 2, 2011

in Agenda for Congress, International, Politics as Usual, Trade

Post image for House Republicans Push for Fast Action on Three Pending Trade Pacts

The new House Republicans are pushing for fast action on the three pending free trade agreements (FTAs) — with South Korea, Colombia, and Panama. In a letter signed by 67 members of the 112th Congress, including freshmen members who had Tea Party support, the representatives said that they want action on the agreements within the next six months.

While the Obama administration has said it wanted to submit the U.S.-South Korea FTA by July of this year, no timetables have been announced for the other two trade pacts that have been stalled for several years. In the case of the Colombia FTA, the AFL-CIO has been the main campaigner against the agreement, charging that the Colombian government is allowing trade union officials to be killed with impunity. Yet research has shown that while Colombia is still a country with a high but declining level of violence, union officials are actually less likely to be crime victims than the average Colombian.

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Will Trade Be a Winner in the New Congress?

by Fran Smith on November 8, 2010

in Economy, International, Trade

In its Sunday editorial, The Washington Post takes an upbeat post-election look at the prospects for stalled trade agreements, especially the pending U.S.-Korea Free Trade Agreement. With the Republicans running the House, the article notes that some key House committee positions — chairman of Ways and Means and chairman of its trade subcommittee — will likely be held by legislators who call themselves free-traders.  There is a note of caution, however, about the role of the new Tea Party members, who may not be as supportive of international trade.  But, the Post notes, former U.S. Trade Representative under President Bush, Rob Portman, handily won the Senate seat in Ohio, which may mean there’s less opposition to trade than commonly thought.

In Seoul, South Korea, today top U.S. and Korean trade negotiators are trying to resolve some differences relating to autos and beef so the negotiations will be complete before President Obama and South Korean President Lee Myung-bak meet Thursday at a summit before the G-20 meeting.  The trade pact would be the largest economic agreement since NAFTA and would substantially reduce both tariff and non-tariff barriers on both sides.  Other countries have moved ahead in signing trade agreements with South Korea, most notably the European Union, and the U.S. would be at a considerable advantage if it backs away from its own Korea agreement.

The Washington Post editorial also points out not only the economic but the important geopolitical ties that a U.S.-Korea FTA and other pending FTAs would further:

At stake is not only economic growth, but also the strategic balance in Asia. As China rises, this agreement would help keep the peace by binding two long-time democratic allies closer. Similar arguments apply to stalled agreements with two U.S. allies in Latin America, Colombia and Panama. The finalization and swift congressional approval of all three pacts should be among Mr. Obama’s highest priorities for 2011.

Hear, hear.

CEI Podcast – October 7, 2010: Trade, Jobs, and Korea

by Ryan Young on October 7, 2010

in Economy, Podcast, Trade

Have a listen here.

CEI Adjunct Fellow Fran Smith talks about the EU-Korea free-trade agreement that takes effect next year, and why the U.S.-Korea FTA stalled, to the economy’s detriment. Fran also talks about NAFTA’s impact on jobs, and why imports are a good thing.

Tricks Against Trade

by Fran Smith on September 15, 2010

in International, Trade

Public Citizen’s Global Trade Watch is up to its tricks against trade again.  Noted for its past expertise in destroying the Seattle WTO negotiations, the group is now taking a new stance against free trade agreements (FTAs), though not by their usual rhetoric that they cost jobs and a “race to the bottom.”  Their new approach is that FTAs actually lower exports. The group just published a “study” purportedly showing that exports to countries that have free trade agreements with the U.S. showed less export growth than did exports to countries that don’t have FTAs.

I guess they are saying that even though these pacts lower tariffs and other trade barriers on many goods and services–making U.S. products and services cheaper for trade partners to import–they have a negative effect on U.S. exports.  A bit counter-intuitive, but theirs is not to reason why — Public Citizen states that quite clearly — but to show that past and, of course, future trade agreements will harm rather than help the U.S. economy.

“It is beyond the scope of this paper to explore in detail why the United States has had lower export growth with FTA partner countries: the central point is that the claim that export growth to FTA partners has been higher than export growth to non-FTA partners is not supported by the actual U.S. government trade flow data.”

In a quick perusal of the 42-page report, what I found most interesting is that the FTA countries were listed in numerous charts and graphs, but nowhere could I find a listing or a mention of which non-FTA countries were included in the analysis.

Isn’t that a somewhat basic analytic flaw — to have specifics about one group you’re analyzing and to use aggregate numbers for the group you’re comparing?

Here are a few more quick observations on the study.  Nowhere do the authors discuss other factors that might explain lower exports than expected in FTA countries.  What was happening in the specific countries?  Could the fact that Mexico had a devastating currency crisis in 1994 — right when the North America Free Trade Agreement went into effect — have anything to do with their diminished ability to import goods and services from the U.S.? After all, Mexico’s GDP declined approximately 7% in 1995.

Also, is China included in the non-FTA countries? If so, then that country’s phenomenal growth over the past 10 years would almost by itself affect the results.  In 2009, China had an 8.7 percent GDP growth rate and imported $69.6 billion of goods and services from the U.S.  The global financial crisis affected U.S. exports to China much less than those to other important markets feeling the brunt of the economic downturn.

In addition, of the top ten countries in terms of U.S. exports, only two have free trade agreements with the U.S. But, of course, since we don’t know which countries Public Citizen used for its “non-FTA” group, there’s no way of knowing if some or most of the top ten were in the list or of analyzing their economic conditions.

Despite what I consider are considerable problems with this report, it’s bound to be used by the anti-trade forces arming themselves for future battles on the pending FTAs with South Korea, Colombia, and Panama.  Betcha too the report will be used in the lead-up to the November elections, as trade-bashing seems to be becoming one of the defining Democratic issues.

President Obama to push U.S.-Korea FTA

by Fran Smith on June 28, 2010

in Economy, International, Trade

Economic reality is beginning to take the place of anti-trade rhetoric on the U.S.-South Korea Free Trade Agreement, which has been on hold since it was signed three years ago.  Today, the Wall Street Journal reported that President Obama has said he will resolve issues relating to beef and autos for the November G-20 meeting in Seoul and then push for ratification of the FTA soon after.

According to the U.S. Trade Representative, that would be good news for the still-faltering economy.  It is estimated that Korea under the FTA would be reducing tariffs and quotas on goods and services, with goods alone adding “$10 billion to $12 billion to annual U.S. Gross Domestic Product and around $10 billion to annual merchandise exports to Korea.”

The pressure is on from other countries pursuing trade agreements with Korea. Last fall the European Union and Korea signed a trade pact, which has to be voted on by Members of the European Parliament.  Canada too has a pending trade agreement with Korea.

Check out CEI’s Issue Analysis on why the U.S. should move ahead on the FTA.

Trade still has some support

by Fran Smith on March 24, 2010

in International, Trade

Some politicians haven’t yet abandoned free trade, even in the face of widespread demagoging on the issue.  As Scott Lincicome notes, five Republican Members of Congress joined together in a March 22 letter to Majority Leader Steny Hoyer (D-MD) to request that the Administration submit three pending trade agreements to Congress for a vote.  The letter points out that the Free Trade Agreements with Panama, Colombia, and South Korea have been languishing for several years since they were signed.   The letter offers a strong defense of trade and doesn’t just focus on the benefits of exports:

“Trade agreements bolster American exports, create jobs, and keep the United States competitive in an increasingly global market.  In fact, according to the U.S. Trade Representative, ‘U.S. manufacturing exports support nearly six million jobs including one in six manufacturing jobs.’  Furthermore, trade agreements forge alliances in politically important regions, and encourage competition and innovation, which yield higher quality goods at lower prices for consumers.  President Obama put it best in his recent State of the Union Address: ‘If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.’”

The letter was signed by Representatives Tom Price (GA), Charles W. Dent (PA), Wally Herger (CA), Mark Steven Kirk (IL), and Kevin Brady (TX).  Now, if only some Dems would join in to make these same arguments.

Defending free trade: the pending FTAs

by Fran Smith on October 15, 2009

in Economy, Employment, International, Trade

The pending U.S. Free Trade Agreements with South Korea, Panama, and Colombia are languishing in limbo, despite the fact that all three agreements will improve the flow of goods and services, foster economic growth and create jobs, and enhance the close relationships between the U.S. and those countries.   That was the theme of the panel of speakers at The Heritage Foundation’s seminar today, “Getting America’s trade agenda back on track.”

The panel featured H.E. Han Duk-soo, Ambassador of the Republic of Korea; Francisco Álvarez de Soto, Vice Minister for International Trade Negotiations, Republic of Panama; and Ricardo Triana, Director, Colombian Government Trade Bureau.  The speakers pointed principally to the FTAs’ benefits to the U.S., not only in economic terms but in its national interests.  Ambassador Terry Miller, the moderator, noted that the three countries are entering into trade agreements with other major trading partners, while the U.S. holds up action on their trade pacts. That disadvantages the U.S., which can’t yet take advantage of significantly lower tariffs on exports of numerous goods and services that the FTAs include.

Representative Bob Goodlatte (R-VA) rounded out the presentations by emphasizing the benefits of free trade, especially in the current downturn, when increased trade can lead to more vibrant economic growth and job creation.  In his closing remarks, Goodlatte hit the cap-and-trade bills currently being considered for the job losses they will create.  He also noted that the proposed sanctions on imports from countries that don’t enact a CO2 repression regime would be a huge mistake and a blow to the world trading system.