U.S.-Korea Trade Deal Resulted in Growing Trade Deficits and Nearly 60,000 Lost Jobs
This Saturday is the second anniversary of the U.S.-Korea Free Trade Agreement (KORUS), which took effect on March 15, 2012. President Obama said at the time that KORUS would increase US goods exports by $10 to $11 billion, supporting 70,000 American jobs from increased exports alone. Things are not turning out as predicted.
In first two years after KORUS took effect, U.S. domestic exports to Korea fell (decreased) by $3.1 billion, a decline of 7.5%, as shown in the figure below. Imports from Korea increased $5.6 billion, an increase of 9.8%. Although rising exports could, in theory, support more U.S. jobs, the decline in US exports to Korea has actually cost American jobs in the past two years. Worse yet, the rapid growth of Korean imports has eliminated even more U.S. jobs. Overall, the U.S. trade deficit with Korea has increased $8.7 billion, or 59.6%, costing nearly 60,000 U.S. jobs. Most of the nearly 60,000 jobs lost were in manufacturing.
Trade deals do more than cut tariffs, they promote foreign direct investment (FDI) and a surge in outsourcing by U.S. and foreign multinational companies (MNCs). FDI leads to growing trade deficits and job losses. U.S. multinationals were responsible for nearly one quarter (26.9 percent) of the U.S. trade deficit in 2011. Foreign multinationals operating in the United States (companies like Kia and Hyundai) were responsible for nearly half (44.2 percent) of the U.S. goods trade deficit in that same year. Taken together, U.S. and foreign MNCs were responsible for nearly three-fourths (77.1 percent) of the U.S. goods trade deficit in 2011.
The administration is now negotiating a Trans-Pacific Partnership (TPP) with eleven other nations in the Asia-Pacific region, including Malaysia, Vietnam, and Japan. The United States has also encouraged South Korea join the TPP. China has also expressed interest in joining the TPP talks. The United States had a trade deficit of $260 billion with the 11 other proposed members of the TTP which has grown steadily since 2009, despite falling U.S. trade deficits with the rest of the world over the past two years .
Many members of the proposed TTP trade and investment deal have long histories of currency manipulation, dumping, and other unfair trade practices that have dramatically increased U.S. trade deficits and job losses, and the agreement could sharply curtail the ability of the United States to challenge these practices. The TPP would significantly increase the threat that rapidly growing trade deficits and job losses in the United States would be locked in if the TPP is completed.
KORUS was the template for TPP and the Transatlantic Trade and Investment Partnership (TTIP). It is a broken model. If completed and approved by Congress, these deals will only result in a more outsourcing by US and foreign MNCs, rising trade deficits and even more trade-related job losses. Proposed trade and investment deals are a direct threat to the heart of U.S. manufacturing employment and domestic production. The United States should stop negotiating new trade deals and fix the ones we have.