The U.S.-Korea Free Trade Agreement (KORUS) has not lived up to its hype, according to a new analysis from EPI Director of Trade and Manufacturing Policy Research Robert E. Scott. In No Jobs from Trade Pacts, Scott shows that free trade agreements (FTAs) often fail to create the jobs that are promised because estimates are based on flawed models, which fail to take increases in imports into account. While KORUS has already hurt the U.S. economy, the Trans-Pacific Partnership and an upcoming trade agreement with the European Union could further increase the threat of rapidly growing trade deficits and job losses.
According to U.S. International Trade Commission (ITC) estimates, KORUS would increase U.S. exports to South Korea by between $10–11 billion dollars and increase imports from South Korea by between $6–7 billion, improving the U.S. trade balance with South Korea by $4–5 billion. In actuality, in the year after KORUS took effect, domestic exports have fallen by $3.5 billion and our trade deficit with South Korea has increased by $5.8 billion.
“Policymakers to stop negotiating trade deals that hurt the U.S. economy,” said Scott. “Unless free trade agreements reduce our too-high trade deficits, they won’t have a net positive effect on U.S. employment. This isn’t a radical stance on trade—it’s textbook economics.”
The Obama administration touted the ITC’s estimate that exports would increase after KORUS, claiming the agreement would support “70,000 American jobs from exports alone.” In fact, taking imports into account, KORUS has cost the United States 40,000 jobs. Estimates for 2013 show no evidence of any improvement or reversal of these trends.
The paper calls on policymakers to take overall trade balances, not just exports, into account when evaluating free trade deals and to develop models that fairly consider FTAs’ effects on outsourcing, employment, wages and the distribution of income.