Throwing cold water on free-trade cheerleaders and alarmists
Depending on whom you’re listening to, the three free-trade agreements that passed this week sound like either the next great hope or a harbinger of doom for the U.S. economy. The U.S. Chamber of Commerce claims the agreements with South Korea, Panama and Colombia will prevent the loss of 380,000 jobs, as Bloomberg News notes. The U.S. International Trade Commission estimates that the agreement with South Korea alone will add more than $10 billion in exports — and create up to 280,000 jobs, as The Post has reported. Contrariwise, the left-leaning Economic Policy Institute argues that the International Trade Commission has been notoriously inaccurate in estimating the impact of NAFTA. Instead, the institute says the new agreements will cost the United States 214,000 jobs — a number that will outstrip the jobs gained.
I talked to two trade experts who are both skeptical that the free-trade agreements will have a major economic impact either way. Rodney Ludema, a Georgetown economist, and Steve Suranovic, a George Washington University economics professor, both warn against expecting any major economic gains or jobs losses anytime soon.
“There might be some noticeable effects in certain sectors, but we’re talking pretty small potatoes,” Ludema says. The agreement with South Korea — the biggest of the three — caught headlines for being the largest agreement since NAFTA. But, Ludema points out, Korea accounts for only 3 percent of imports—“about one-fourth the size of Mexico, less than one-fifth of imports from Canada.” He adds that the tariffs for the biggest Korean imports — Hyundai cars, Samsung electronics and so forth — are already quite low, so lifting them won’t make much of a difference. At the same time, to the degree that Korean imports will displace other products, it’s more likely that it will come at the expense of similar countries who trade with the United States, such as Japan and Singapore, rather than domestic products, Ludema concludes.
What’s more, these trade adjustments won’t take effect for a good while yet, as the agreements will be implemented over many years. “It’s not going to give a noticeable boost,” says Suranovic, the GWU economist. The agreements will be “implemented over a 10- to 15-year period. It’s not like we’re going to have free trade tomorrow.” Ludema estimates that the trade impact of the South Korea. agreement won’t hit the United States for three years.
Ludema and Suranovic also say they’re highly skeptical of the numbers from both sides of the debate estimating jobs lost and gained. “I wouldn’t put very much stock in these numbers,” Ludema says. “There are about a million things that affect U.S. job creation, and disentangling all of them is difficult. . . . They should be quoting a range, not a figure, and that range is really really big.”
Suranovic argues that the International Trade Commission relies on an economic model that doesn’t take unemployment adequately into account. The Economic Policy Institute, on the other hand, uses trade deficits as a basis for estimating job loss — an approach that Suranovic also thinks is flawed for not accounting for bigger, broader changes to the economy. “There are jobs being created in industries being affected [by free-trade agreements] that are not obviously linked to trade,” he says. “Economic models give us a broader sense of economic impact, but only some of those impacts are obvious.”
However flawed, though, these competing jobs numbers have had a major political impact on the way Congress has grappled with the issue. Many Democrats — and their labor union allies — were only willing to support these agreements on the condition that Congress provide a $900 million in job assistance to workers who are laid off as a direct result of these trade agreements. The assistance is basically an amped-up version of unemployment insurance, with additional health care, retraining and relocation assistance.
But Ludema and Suranovic question why workers who lose their jobs because of trade should be privileged over workers displaced because of other economic policy changes. “International trade is really just opening up the U.S. to more competition, but the [bill] doesn’t give out benefits because of domestic competition,” Suranovic says. Alternatively, some have proposed scrapping the entire unemployment insurance program, replacing both the trade assistance and traditional benefits with a broader safety net to help all workers displaced by economic upheavals — whatever the cause.