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Why is U.S. pushing for free trade pacts?

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U.S. 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% with our free-trade partners. In the same period, they've declined 11% 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%.

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% 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%. 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% 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% 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%. 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.

© (c) Copyright Thomson Reuters 2015.

©2021 GPlusMedia Inc.

15 Comments
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Why is the US pushing for Free Trade Pacts?

Because the CFR told politicians of in both houses to do so.

The Richer will get richer while the middle class become the food stamp class.

2 ( +6 / -4 )

This article answers in part the question why not. The question why is that the US, like most other so-called democracies, have become corporate states, where politicians and high level bureaucrats do the bidding of the corporate and investment class and do not represent the people who elect them or pay their salaries.

9 ( +9 / -0 )

Free trade should be good for everybody involved, basic economics tells you this. Some problems can develop, though, when you trade with crooks and thieves like the Chinese and the Russians. By and large it is quite positive. No one seriously thinks we should go back to the days before NAFTA.

-5 ( +1 / -6 )

when you trade with crooks and thieves like the Chinese and the Russians.

Like it or not, 90% of the products on US store shelves are made in China.

Walk into any Walmart, grab a product and look at the back. You'll find three words.

Made in China.

-1 ( +3 / -4 )

@Burning Bush, you hit the nail right on the head.

2 ( +3 / -1 )

This article answers in part the question why not. The question why is that the US, like most other so-called democracies, have become corporate states, where politicians and high level bureaucrats do the bidding of the corporate and investment class and do not represent the people who elect them or pay their salaries.

The opposite is true. The political class in no less beholden to corporations than it is to the voters. Were this not the case, American corporations would not be paying 38% corporate tax, or hold their overseas assets outside the country so as to avoid America's unique repatriation tax. The government wouldn't be levying multi-billion dollar fines against financial and other companies for any misdeeds. There wouldn't be miles of red tape, licenses, fees, and bureaucracy of all levels to navigate in the course of doing even routine business.

The political class is a power unto itself, which despises the corporate and business culture as much as it pretends to serve the lower classess The political class gets into power by manipulating the ignorant into voting for them, and twists the arms of businesses and corporations to contribute money to campaigns. For businesses to work with politicians, there must be sufficient graft to funnel back to whichever politician approved the work. This is one of the reasons America's infrastructure is crumbling, the costs for even a simple project are astronomical, due to missed deadlines, and associated cost overruns which benefit the political class more than it does the contractors who do the work.

But you can believe the class warfare rhetoric that the political class uses to divide and fool, and which causes businesses to move to places were they face less extortion. But when you can't get a job, or earn decent pay because any company which is still doing business in America pays more in tax than it does in payroll, you might change your opinion.

-5 ( +3 / -8 )

The analysis on KORUS is misleading. Exports of both countries to the other increased each year since the start of the agreement. Korea has done better, but the trade deficit per se did not destroy any jobs directly since American exports also increased in this time frame even though not at the same rate.

The FTA is for the most competitive of each country's sectors with some incentives for companies to become more competitive. Both Korean and American companies sometimes find greater competitiveness through "labor flexibility" which is bad news for organized and unskilled labor in both countries. There are definitely winners, including agricultural product firms which export cherries, apples, almonds, and so forth. Michigan did not lose any jobs to Hyundai or Kia plants in Korea, because Michigan already lost those jobs to Korean plants in America. The key would be for the American auto companies to recoup by selling cars in Korea. The irony here is that more and more Korean consumers are finding foreign vehicles to be higher quality that Hyundai/Kia; unfortunately the Korean consumer has found satisfaction far more in European cars. Even a Lexus can find a buyer.

So KORUS is not per se a slam dunk argument against TPP.

That being said, a close analysis of the TPP raises a lot of questions. Like KORUS, the TPP is about advantaging the winners, and only incidentally about trying to expand the number or breadth of winners. That does not mean that it expands the number of losers; it does mean that the number of non-winners remains mostly unchanged. The winners are, of course, politically well connected and there will undoubtedly be coincidence of interests between Obama and the Republicans to get fast track.

Will TPP open up Japan? This is a selling point. Well, Abe Shinzo's political party holds to its position that it will not sacrifice the interests of its aging farmers, and more importantly the rural cooperatives with their credit unions and political connections in a system in which a rural vote is worth more than an urban one. By the way TPP does not abide by most favored nation principles. That means TPP, at its core, is a huge agglomeration of bilateral deals. So Japan can retain "terrific action" of its rice market in exchange for a commitment to purchase a certain quantity from America and others. That is free trade? Will TPP help "reformers" in Malaysia end crony capitalism and the constraints on trade produced by that system? That is doubtful because the "reformers" are part of the current system. Will TPP create the rule of law and greater economic freedom in Vietnam? I concede that Vietnam is probably no longer a Marxist state, but it strains credulity to think of TPP as having transformational powers.

Obama needs to TPP to demonstrate that the rebalance is more than a few extra troops in Australia. The Republicans want to do something for their business constituencies. This is probably an equation leading to fast track authority. There will be winners. Buy their stocks.

0 ( +1 / -1 )

As the "economic divide" between the rich and poor grows ever larger, "class warfare" is becoming increasingly justified. President Obama is getting very poor advice from his advisors on this "fast track" nonsense, which will most likely end up hurting the lower and middle class even more after they have already suffered enough in the last two decades.

1 ( +2 / -1 )

Instead of continuing with the past practices of bilateral Free Trade Pacts between countries, the move should be to establish world-wide free trade between all countries and measures in that direction should be chalked out by the World Trade Organization!

0 ( +0 / -0 )

@liarsnfools

The key would be for the American auto companies to recoup by selling cars in Korea. The irony here is that more and more Korean consumers are finding foreign vehicles to be higher quality that Hyundai/Kia; unfortunately the Korean consumer has found satisfaction far more in European cars.

*

Camry mid-size family sedan won the 2013 “Korea Car of the Year” award. Toyota found a way to circumvent the strong yen: it decided that the new Camry, which was introduced last January by company CEO Akio Toyoda personally, would be imported from the U.S. instead of Japan. The thinking was that, in doing so, Toyota would take advantage of both the Korea-U.S. free trade pact and the favorable won-U.S. dollar exchange rate and keep prices down. They were right: the Camry ended 2012 as the second best-selling imported car in the country behind the BMW 520d.

What you are saying is true. But many US makes do sell in Korea (Jeep, Cadillac, Chevy Van). GM has manufacturing in Korea.

http://en.wikipedia.org/wiki/GM_Korea

Much of the the KIA design is done in Germany.

https://www.youtube.com/watch?v=cV5nohpezWc

0 ( +1 / -1 )

Why is U.S. pushing for free trade pacts?

For one thing, force countries to take their GMO products and planting seeds.

2 ( +2 / -0 )

@Badsey3

My point is related to jobs in Michigan. The Camry, like the Hyundai and Kia models, are purposely manufactured in America outside of Michigan to try to avoid the clutches of the UAW, which is not a fan of KORUS or TPP. Moreover, the cachet of the Camry is that it is a Japanese car in the eyes of the Koreans and not American. The reason GM manufactures in Korea is related to it being the vulture that picked up the remnants of Daewoo's auto venture. I am not making a claim that Hyundai and Kia are huge design or innovation champions. They are outstanding copy cat manufacturers (I drive a Sonata myself), but given enough money, many Koreans would opt for a BMW.

These factors led the American big 2 and 1/2 and their unions to be among the interest groups to be cajoled into grudging non-opposition to KORUS. They are not losers in this process, but they also are not among the big winners.

0 ( +0 / -0 )

"The TPP is much more than a “free-trade” agreement.

It is part of the overall corporate and Wall Street agenda to make the world safe for corporate investment and profits by

reducing labor costs and undercutting workers’ rights;

dismantling labor, environmental, health and financial laws and regulations that could impact profits;

and setting up a process to resolve any disputes by going through special international tribunals rather than our own court system."

"All journalists and nearly all businesses and public interest groups, and the majority of Congress have been denied effective access to the negotiating texts. However, 600 corporate advisors — including Verizon and Wal-Mart — have been given access. The actual text will not be released until four years after the talks have been concluded or a deal has been reached."

reference: http://www.cwa-union.org/issues/entry/c/trans-pacific_free_trade_agreement#.UvF5lnddVb8

Either these statements are true or false, but no one will know.

0 ( +0 / -0 )

Something like 80% of economists say that it is possible for both sides to benefit in a trade agreement. I may think that economics is the "dismal science" and that everything an economist says should be considered immoral, but not acknowledging some basic truths doesn't help anyone.

-1 ( +1 / -2 )

sangetsu03Feb. 21, 2015 - 01:28PM JST The opposite is true. The political class in no less beholden to corporations than it is to the voters.

... you do understand the idea of democracy, right? Well, clearly not. Politicians are accountable to the voters. Not to the corporations. Corporations are nothing more than "holding companies" for voters, and voters already vote. Do what the voters say. Companies should have NO voice beyond that allowed by the voters.

Were this not the case, American corporations would not be paying 38% corporate tax, or hold their overseas assets outside the country so as to avoid America's unique repatriation tax.

... so which is it? Are American corporations faithful tax payers who shoulder a higher tax rate, or at they tax dodgers who keep assets overseas to avoid paying tax in the USA? This one should be a no-brainer for anyone who's seen the statistics on what tax rate U.S. companies really pay compared to their income... which is about 2% for most major corporations.

Dodging tax is so endemic in the U.S. that corporate taxes accounted for only 9% of tax revenues, while individual taxes accounted for more than 80% of tax revenue.

You don't have an argument sangestu03. U.S. corporations are blatantly irresponsible citizens, and if they were treated the same way as regular citizens they would have been imprisoned long ago... but the U.S. legal system isn't blind, it sees only green.

-7 ( +1 / -8 )

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