Economic Benefits Of Trade Agreements – Past, Present And Future – Not At All Clear
from the hang-on-a-minute dept
As we’ve noted before, trade agreements are usually sold on the basis that they will bring economic benefits for large numbers of the citizens involved. But that doesn’t always work out in practice, as earlier figures regarding the North American Free Trade Agreement (NAFTA) and South Korea-US free trade agreement (KORUS) indicated. New corrected 2013 year-end trade data from the US International Trade Commission shows that things aren’t getting any better. Here’s what’s happening with NAFTA, as encapsulated (rather breathlessly) by Public Citizen (pdf):
A staggering U.S. trade deficit with Canada and Mexico after 20 years of the North American Free Trade Agreement (NAFTA)
The 2013 U.S. goods trade deficit with Mexico and Canada was $177 billion — a nearly seven-fold increase above the pre-NAFTA level, when the United States enjoyed a small trade surplus with Mexico and a modest deficit with Canada
Even worse for U.S. workers, the non-oil NAFTA deficit has multiplied more than 13-fold, costing hundreds of thousands of U.S. jobs. Indeed, the share of the combined U.S. trade deficit with Mexico and Canada that is comprised of oil has declined since NAFTA.
Things are equally grim on the KORUS front:
A stunning decline in U.S. exports to Korea, a rise in imports from Korea, and a widening of the U.S. trade deficit under the Korea Free Trade Agreement (FTA).
20 out of 21 months since the Korea FTA took effect, U.S. goods exports to Korea have fallen below the average monthly level in the year before the deal.
U.S. average monthly exports to Korea since the FTA are 12 percent lower than the pre-FTA monthly average, while monthly imports from Korea are up 3 percent.
The monthly trade deficit with Korea has ballooned 49 percent compared to the pre-FTA level. These losses amount to tens of thousands of lost U.S. jobs
Part of the problem with future free trade agreements like TPP and TAFTA/TTIP is that (obviously) we have no historical figures; instead, we must rely on economic models to predict what the benefits might be. Embedded within models are many assumptions, and people will naturally disagree over how reasonable those are. For example, in New Zealand, the Sustainability Council has published details of its review of the model that the New Zealand government has depended upon in order to justify its enthusiasm for the TPP negotations. Here’s what the Council claims to have found:
The government has repeatedly used estimates from a team of US economists to justify the Trans Pacific Partnership. This team put the economic gains for New Zealand at US$4.5 billion for 2025 (around NZ$5.5 billion) in their latest study for the Peterson Institute.
A detailed review of that study led by Dr Geoff Bertram concludes that a third of the stated benefits should not be counted at all as they are outside established economic theory. The Sustainability Council review also concludes that only a minor part of the remaining gains are justified. The total benefits likely to be available are less than a quarter of the US$4.1 billion of gains Trade Minister Tim Groser told Parliament would result for New Zealand from the TPP.
In exchange for a small gain in relative terms, New Zealand is being asked to sign away large slabs of its sovereignty. The TPP bundles the small gains from trade with a wide range of non-trade matters that will set privileges for foreign investors. These would impose serious costs in the form of limitations on a government’s ability to protect the public interest.
Now, given the organization’s name, it’s quite likely that the Sustainability Council has an axe to grind here, but then so does the New Zealand government, which has invested a huge amount of time, money and political capital in the TPP negotiations. What that means is everyone’s claims about benefits or lack of them need to be treated with caution. And that, in its turn, means that the TPP negotiators should think very hard before making real sacrifices for what may prove highly elusive gains.