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As free trade pacts expand, U.S. trade deficit soars. Why add one more?

Thursday, February 19, 2015, 06:40 GMT+7

(Reuters) - President Barack Obama has called on Congress to grant him fast-track trade authority for his Trans-Pacific Partnership free-trade agreement. The administration insists the authority, which would give Congress only an up-or-down vote on the agreement, is needed to get the best possible terms from its trade partners along the Pacific Rim.

During his 2008 presidential campaign, Obama promised to renegotiate and improve the North American Free Trade Agreement (NAFTA). But it now looks like what he really meant is to expand on that flawed trade model and extend it to other countries.

Twenty-one years after NAFTA and four years after Obama's 2011 U.S.-South Korea Free Trade Agreement, there is abundant data documenting how this trade model has been disastrous for most U.S. businesses, farmers and workers.

Since the pacts were implemented, U.S. trade deficits, which drag down economic growth, have soared more than 430 percent with our free-trade partners. In the same period, they've declined 11 percent with countries that are not free-trade partners. Since fast-track trade authority was used to pass NAFTA and the U.S. entrance into the World Trade Organization, the overall annual U.S. trade deficit in goods has more than quadrupled, from $218 billion to $912 billion.

The United States now has an annual $177-billion trade deficit in goods with its 20 free-trade partners. Over the past decade, however, U.S. export growth to countries that are not free-trade partners exceeded the growth of free-trade partners by 24 percent.

Under NAFTA, small U.S. firms' share of exports to Canada and Mexico has fallen. Had these businesses not lost their share of exports, they might instead be exporting $13.5 billion more each year to Mexico and Canada.

Nearly 5 million U.S. manufacturing jobs - one in four - have been lost since NAFTA and the various post-NAFTA expansion deals were enacted through fast track. These free-trade agreements have fundamentally transformed the types of jobs and wages available for the 63 percent of all U.S. workers without a college degree.

Three of every five displaced manufacturing workers rehired in 2014 are earning lower wages, according to the Bureau of Labor Statistics, with one-third taking a pay cut greater than 20 percent. As the unemployed manufacturing workers began competing for service-industry jobs that can't be shipped offshore, such as hospitality and retail, real wages have also fallen in these sectors.

U.S. wages, overall, have barely increased in real terms since 1974 - the year fast track was enacted - even as U.S. worker productivity has doubled.

When asked how U.S. workers will fare against Vietnam's 58-cents-an-hour average minimum wage, Washington trade officials hide behind the wording of the Trans-Pacific Partnership's labor chapter. Yet this section only rehashes labor standards that President George W. Bush included in his pacts with Colombia, Panama and Peru, which, according to a new Government Accountability Office report, have failed miserably in improving working conditions in free-trade partner countries.

At the same time, cuts in consumer goods prices have not been enough to offset the losses to middle-class wages under these agreements. U.S. workers without college degrees have lost roughly 12.2 percent of their wages - even after accounting for the benefits of cheaper imported goods. This means less, not more, consumer demand for U.S. manufacturing and service-sector firms.

Obama administration trade officials say that this is old news. They insist their agreements are different.

But Obama's 2011 trade deal with South Korea, which serves as the template for the new Trans-Pacific Partnership, has resulted in a 50 percent jump in the U.S. trade deficit with South Korea in its first two years. This equates to 50,000 U.S. jobs lost. Small-businesses' exports to South Korea have also declined sharply, falling 14 percent. In just one month, October 2014, the United States had a $3-billion trade deficit in goods with South Korea, the highest on record.

Recent trade flows, economists widely agree, have been a significant contributor to the historic rise in U.S. income inequality. The only debate is about the degree of trade's responsibility. The Peterson Institute for International Economics, for one, found that trade accounts for 39 percent of the growth in wage inequality.

This makes it particularly perverse that Obama, who's announced that his priorities are battling income inequality and creating middle-class jobs, is pushing a Pacific region trade pact that replicates the odious NAFTA terms that favor job offshoring and bans responsible "Buy American" procurement preferences.

It's no surprise that the U.S. Chamber of Commerce praises Obama's trade agenda because the chamber mostly represents the interests of the largest multinational firms, while running roughshod over the interests of Main Street chamber members.

But the opposition to Trans-Pacific Partnership and Obama administration trade policies by prominent economists and policymakers who supported past free-trade agreements is notable. Former Labor Secretary Robert Reich, who supported NAFTA when he served in the Clinton cabinet, has come out against it, as have pro-free-trade economists such as Paul Krugman, Jeffrey Sachs and Joseph Stiglitz.

Jared Bernstein, Vice President Joe Biden's former chief economist, has emphasized that without enforceable rules against currency manipulation (a tool other countries can use to unfairly subsidize their exports and undercut U.S. production), the Trans-Pacific Partnership would further increase income inequality and damage U.S. businesses and farmers. Even though 230 representatives and 60 senators now demand currency-manipulation protection in the pact, the White House has refused even to raise the issue.

All this goes a long way to explain why Obama's quest for fast-track trade authority is facing broad opposition in Congress. This power would irresponsibly empower Obama to sign and enter into the Trans-Pacific Partnership even before Congress votes to approve its terms. It would then guarantee an up-or-down vote within 90 days with only limited debate and amendments forbidden whether or not Congress' objectives for the pact are met.

What's inexplicable is why the Obama administration is pushing a trade agenda that so directly undermines the middle-class economic agenda the president says he desires to be his legacy. The only good news is that broad congressional opposition to fast-track authority may save Obama and his desired legacy from his proposed trade agenda.


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