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.

korus trade-handoff

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.

  • I agree with this article that the KORUS treaty has harmed America, and that the TPP will magnify these harms. And I agree that we must “fix” our existing Trade treaties before negotiating new ones. Read the report “NAFTA’s 20-Year Legacy and the Fate of the Trans-Pacific Partnership”, by Ben Beachy at Public Citizen, to see how KORUS is just a smaller example of the harms done by NAFTA-style trade treaties, which the TPP would repeat and expand.

    But I do not think “currency manipulation” or “unfair trade practices” are the root of the loss of American manufacturing or the trade deficits this causes. It is the sovereign right of nations to “manipulate” the value of their currency (or their exports) however they determine is best for their national interest. Seeking to solve America’s economic problems by changing the behavior of other nations is a losing proposition.

    Fortunately we don’t need global governance solutions to our economic problems. Warren Buffett proposed in a 2003 Fortune Magazine article a Balanced Trade plan that would use Import Certificates as import licenses. These ICs would be issued in the same value as our exports, being a unilateral and effective solution to America’s trade deficits. By diverting our annual trade deficits over $700 Billion into new demand for US-made goods, millions of new US manufacturing jobs would be created and millions more new US jobs in other sectors would be created through the multiplier-effect manufacturing has.

    The author of the above article, Rob Scott, wrote an excellent study of the Buffett Plan entitled “Re-Balancing US Trade and Capital Accounts: An Analysis of Warren Buffett’s Import Certificate Plan.”

    In that article, Mr. Scott concluded that “If the Buffett plan is implemented, it would have substantial benefits for U.S. manufacturing industries, and it would support a substantial expansion in exports and employment in these highly productive sectors of the economy….The Buffett plan provides a way of out of our codependent net import‐ and capital‐dependent past and a way forward for the U.S. economy. It is time to seriously consider such bold solutions to our longstanding trade problems.”

    In that article, Mr. Scott also came to the same conclusions of Terence Stewart and Elizabeth Drake (international trade lawyers), who in their article “Addressing Balance‐of‐Payments Difficulties Under WTO Rules” concluded that an Import Certificate system would conform to WTO rules, by virtue of GATT Article XII.

    The USA can solve our economic problems by unilaterally limiting our imports to the same value as our exports. This would assert our national sovereignty rather than give it away to global governance through the WTO and the Free Trade treaties such as NAFTA, KORUS or the TPP, all of which remove governance from our Congress and state legislatures and put it in the hands of international tribunals not responsible to the American citizenry.

  • Jerry Polk

    Let the Koreans set the trade policy — put the same tariff on their products that they put on ours. I wouldn’t buy a korean car or electronic product for a dollar. They are making fools of us while we lose American jobs.