Free Trade Costs American Jobs

Protesters, many against the so-called fast track trade authority of the Trans-Pacific Partnership (TPP) trade agreement, rally outside a hotel where U.S. President Barack Obama is participating in a Democratic National Committee (DNC) event in Portland, Oregon May 7, 2015. Jonathan Ernst/Reuters

Recently, the president claimed that critics who say that the Trans-Pacific Partnership (TPP) "is bad for working families … don't know what they are talking about."

Skeptics would respond, "Show me the money. Show me the jobs and wages you're going to generate for working Americans. Explain how the TPP is going to be different from the lousy trade deals we've had since the North American Free Trade Agreement (NAFTA) was signed into law in 1993."

The White House Council of Economic Advisors released a report touting the benefits of the TPP in pulling down barriers to U.S. exports abroad, but the report fails to mention the most important barrier to U.S. export success: several major trade partners (including TPP partners) managing the value of their own currencies for competitive gain vis-à-vis the U.S. Yet the Obama administration has refused to even discuss the currency issue in the TPP negotiations.

One problem with trade and investment deals, especially with lower-wage countries like South Korea and China, is that they often result in growing trade deficits and job losses. In 2011, President Obama claimed that the Korea-U.S. free trade agreement (KORUS) would "support 70,000 American jobs" because the agreement would "increase exports of American goods by $10 billion to $11 billion."

He failed to say anything about rising imports, which will put Americans out of work. Looking only at exports is like counting only the runs by the home team. It might make you feel good, but it doesn't tell you the outcome of the game—it doesn't tell you whether your team won or lost.

Since KORUS took effect in 2012, exports to Korea have increased by less than $1 billion. Meanwhile, U.S. imports have surged more than $12 billion, resulting in a net loss of 75,000 U.S. jobs.

Similarly, Bill Clinton claimed that NAFTA would create 200,000 jobs in its first two years and a million jobs in five years. Instead, between 1993 (before NAFTA) and 2013, the U.S. trade deficit with Mexico and Canada increased from $17 billion to $177.2 billion, displacing more than 850,000 U.S. jobs.

And then there's Permanent Normal Trade Relations with China and China's admission to the World Trade Organization (WTO), which led to an explosion of imports and the loss of more than 3 million jobs, mostly in manufacturing and mostly in occupations that paid more than the jobs created in exports industries, and much more than jobs in non-traded industries.

While trade and investment deals have eliminated millions of good jobs, that's only the most visible part of their corrosive effect on working Americans. Growing trade with low-wage countries has also driven down the wages of most American workers, especially those without college degrees.

My colleague Josh Bivens has shown that expanded trade with low-wage countries has reduced the annual wages of a typical worker by $1,800 per year. Given that there are roughly 100 million non-college-educated workers in the U.S. economy (about 70 percent of the labor force), the scale of wage losses suffered by this group translates to roughly $180 billion.

Trade deals such as KORUS (completed by President Obama), and the agreement to bring China into the WTO (negotiated by President Clinton), have contributed to these losses. It's not surprising that one commentator concluded that "the Trans-Pacific Partnership trade deal is an abomination," because of its impacts on "low-skilled manufacturing workers and income inequality."

The leading cause of growing U.S. trade deficits is currency manipulation, which distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports. More than 20 countries, led by China, have been spending about $1 trillion per year buying foreign assets to artificially suppress the value of their currencies. Ending currency manipulation can create between 2.3 million and 5.8 million jobs for working Americans.

Several well-known currency manipulators—including Japan, Malaysia and Singapore—are members of the proposed TPP, and others—including Korea, Taiwan and China—have expressed interest in joining the agreement.

Unless there is a strong currency provision in the TPP, reductions in the U.S. trade deficit—the most promising route back to sustainable full employment—will be harder to obtain following its passage. Without a currency provision, the TPP is likely to lead to growing trade deficits and job losses.

If Obama is concerned with working families, he should focus on stopping currency manipulation.

Robert E. Scott is the director of trade and manufacturing policy research at the Economic Policy Institute. This article first appeared in The Washington Spectator.