Bad Agreements

How Trade Deals Boost the Top 1% and Bust the Rest

Robert Reich

Monday, February 16, 2015

Suppose that by enacting a particular law we’d increase the U.S.Gross Domestic Product. But almost all that growth would go to the richest 1percent. 


The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages.

This is pretty much what “free trade” has brought us over the last two decades.

I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains.

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The fact is, trade agreements are no longer really about trade. Worldwide tariffs are already low. Big American corporations no longer make many products in the United States for export abroad.

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To the extent big American-based corporations any longer make stuff for export, they make most of it abroad and then export it from there, for sale all over the world – including for sale back here in the United States.

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In fact, today’s “trade agreements” should really be called “global corporate agreements” because they’re mostly about protecting the assets and profits of these global corporations rather than increasing American jobs and wages. The deals don’t even guard against currency manipulation by other nations.

According to Economic Policy Institute, the North American Free Trade Act cost U.S. workers almost 700,000 jobs, thereby pushing down American wages.

Since the passage of the Korea-U.S. Free Trade Agreement, America’s trade deficit with Korea has grown more than 80 percent, equivalent to a loss of more than 70,000 additional U.S. jobs.

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The old-style trade agreements of the 1960s and 1970s increased worldwide demand for products made by American workers, and thereby helped push up American wages.

The new-style global corporate agreements mainly enhance corporate and financial profits, and push down wages.

That’s why big corporations and Wall Street are so enthusiastic about the upcoming Trans Pacific Partnership – the giant deal among countries responsible for 40 percent of the global economy.

That deal would give giant corporations even more patent protection overseas. It would also guard their overseas profits.

And it would allow them to challenge any nation’s health, safety, and environmental laws that stand in the way of their profits – including our own.

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Global deals like the Trans Pacific Partnership will boost the profits of Wall Street and big corporations, and make the richest 1 percent even richer.

But they’ll bust the rest of America.

How Third Way Trade Agreements Study Distorts Via Omission to Pave Way for TTP and TTIP

By Kenneth Thomas, Naked Capitalism

Posted on February 17, 2015

Third Way (h/t TPM), a Democratic pro-trade think tank, has released a new study, “Are Modern Trade Deals Working?” It examines the various “free trade” deals the U.S. has signed since 2000 to conclude that 13 of 17 have led to an improvement in our goods (not including services; see more below) trade balance with the countries involved, giving a net improvement over the 17 agreements studied of $30.2 billion per year.

I did a similar analysis of this very question (though in less detail than the Third Way study) in 2012. Unlike the Third Way report, my post included all U.S. free trade agreements (rather than starting in 2001 like Third Way) as well as the effect of the 2000 agreement for Permanent Normalized Trade Relations (PNTR) with China. So, compared to the Third Way study, my post includes the FTAs with Israel, Canada, and Mexico, but did not consider the Panama FTA, which had not yet come into effect when I posted. My conclusion was essentially the same as Third Way’s, that the effects of the agreements on our trade in goods were usually positive, but of small size (the effect of the Israel FTA was also small). Because the Third Way study begins in 2001, however, it omits the impacts of NAFTA and PNTR with China. However, as my post showed, they are the most important by far.

This fact is not lost on opponents of the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Lori Wallach of Public Citizen Global Trade Watch told the Associated Press that “studies such as Third Way’s make a big deal out of modest trade improvements with countries like Panama, and gloss over huge trade deficits with major trading partners such as South Korea, Mexico and Canada.” She’s right.

In 1993, the year before NAFTA went into effect, the United States had a surplus with Mexico on trade in goods of $1.7 billion. In 1995, it went to a deficit of $15.8 billion, and in 2014 the goods trade deficit was $53.8 billion, down from 2007′s peak of $74.8 billion. This was in sharp contrast with the analysis of Gary Hufbauer and Jeffrey Schott, who predicted trade surpluses on the order of $9-12 billion through the 2000s, even as they admitted that the peso was overvalued (it collapsed in value in the December 1994 “Tequila crisis”).

Meanwhile, the balance of trade in goods with Canada went from a deficit of $10.8 billion in 1993 to $34.0 billion in 2014. Note that the U.S. had a peak deficit of $78.3 billion in 2008, which collapsed to  $21.6 billion in 2009.

In 2000, the year PNTR was adopted, the United States had an $83.9 billion goods trade deficit with China. In May of that year, the International Trade Commission (h/t David Cay Johnston) released a report estimating that the trade balance would worsen by a further $4.3 billion. According to the article, the U.S. Trade Representative and the White House both criticized this study strongly. And in fact, the 2001 deficit fell to $83.1 billion. However, in 2002 it was $103.1 billion, an increase more than four times the ITC prediction, and by 2014 it had grown to $342.6 billion.

By including trade in goods but not trade in services, Third Way is admirably the stacking the deck against its own position. It points out that the U.S. has a global surplus in trade in services of $232 billion in 2014, including a $45 billion surplus with Canada and Mexico. However, it doesn’t mention that the U.S. goods trade deficit was $737 billion in 2014, or that the country’s overall 2014 trade deficit was $505 billion, up from $477 billion in 2013.

The ultimate question is whether TPP and TTIP are going to be more like the U.S.-Australia Free Trade Agreement, or more like NAFTA and PNTR. Considering that the TPP includes all the NAFTA countries, Australia, Chile, Japan, and six others, comprising “nearly 40 percent of global GDP,” I think it’s safe to assume that it will have a much bigger impact than the FTAs with Australia or Chile, for instance. Similarly, since the European Union has an economy about the same size as the U.S. economy, I believe the TTIP will also have big consequences.

Moreover, we have to remember that these are much more than trade agreements. Both of them have increased protections for investors, patents, trademarks, and other intellectual property, and in both of them the U.S. is advocating the inclusion of investor-state dispute settlement so companies can sue governments through arbitration rather than courts, something that has proven more favorable for companies vis-a-vis both governments and consumers. So, in addition to the negative effects on U.S. workers that we would expect on the basis of the Stolper-Samuelson Theorem, all signatory countries are likely to suffer from higher prices for medicine and assaults on their regulations through investor-state dispute settlement.