Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



U.S. Trade Agreements Have Been an Economic Disaster for American Workers
Raymond Richman, 5/21/2015

In 1947, the U.S. began negotiations to seek an international General Agreement on Tariffs and Trade (GATT). There were eight rounds of negotiation from 1947 to 1994. The Tokyo round which began in 1973 and lasted for more than six years was attended by 102 nations. The last round began in Uruguay in September, 1986 and 123 nations participated and ended with the creation of the World Trade Organization (WTO) in 1995. GATT marked the beginning of the end of the USA as the world’s leading industrial power.

GATT was followed by the granting of “most favored nation” status to China in 2000. In a 2012 article by Justin R. Pierce, a Federal Reserve Board researcher, and Yale economist Peter K. Schott, found a link between the sharp drop in U.S. manufacturing employment after 2001 and the elimination of trade policy uncertainty resulting from the U.S. granting of permanent normal trade relations to China.

When one examines the history of the US trade balance, it appears that until the end of the Tokyo round which lasted from 1973 to 1979, the US ran small trade surpluses with the rest of the world. The US trade surplus in 1981 was $3.1 billion. In 1983, the US experienced a trade deficit of $35.1 billion. By the end of the Uruguay round, 1983-1994, and the creation of the WTO in 1995,.the U.S. trade deficit had grown to $105.3 billion.

Congress passed the North American Free Trade Agreement Implementation Act in 1993. The U.S. trade deficit grew steadily, reaching $405 billion in 2000 and peaked at $804 billion in 2006,no doubt contributing to the Great Recession of 2008-09. Pres. Clinton, when he signed the NAFTA bill, stated that "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement."   He may have believed that but he was wrong.The US goods trade deficit with NAFTA was $94.6 billion in 2010 and accounted for 26.8% of the overall U.S. goods trade deficit.  Much of this growth has been due to increased trade between the United States and Mexico, where the trade balance—the difference between exports and imports—swung from a $1.7 billion U.S. surplus in 1993 to a $61.4 billion deficit in 2012.

Given the near certainty that the U.S would never impose new tariffs, U.S. manufacturers began to move their factories and out-source production overseas and to import their foreign-made products to the U.S. duty-free. American and other foreign producers who relocated the production of their products abroad have converted China into a leading manufacturing power, producing nearly all the high-tech products like i-phones, cell-phones, computers, television sets, etc.as well as mass-produced products like shoes, clothing, housewares, light manufactures, etc., etc. consumed in the U.S., causing manufacturing to decline and the loss of millions of jobs.

Why didn’t U.S. corporations move their factories abroad before the era of trade liberalization? Because of the uncertainty that their exports to the US would be duty-free. American firms open factories abroad to produce products to be consumed in the countries they invest in but also in the expectation of being able to sell their products in the U.S., the world’s biggest consumer market, duty-free. The US trade deficits have been exacerbated by the imports from American companies producing their products abroad and exporting them to the U.S.

“While trade with China is a prime suspect in the overall loss of U.S. manufacturing jobs in recent decades,” says Schott, “what’s interesting about the change in policy we study is that it did not affect the level of tariffs the U.S. applied to Chinese imports. Rather, it eliminated uncertainty about those tariffs.” Before 2000, Chinese imports into the United States enjoyed the same low tariffs that the U.S. applies to other countries with which it has “normal trade relations” (NTR). In China’s case, however, this NTR status was subject to politically contentious annual renewals. With the October 2000 change in policy, China’s NTR status became permanent. The impact on U.S. manufacturing employment is quite large. “According to our estimates, employment growth in the average industry was 30% lower between 2001 and 2007 than it would have been had the decline in uncertainty not occurred,” says Schott.

A world free trade regime is only possible if countries retain the ability to impose single-country variable tariffs which countries can use to compel balanced trade, as described in our book Balanced Trade (Lexington, 2014) . Of course, if a country’s total trade is in balance, it should not impose single-country variable tariffs. The right to impose single-country variable tariffs is all a country needs to prevent other countries from employing mercantilist practices to achieve a trade surplus. The need for the World Trade Organization, principally financed by U.S. taxpayers and totally ineffective, would be eliminated.

Clearly U.S. trade policy since 1947 has been a disaster for the U.S. economy and for American workers in particular.

Your Name:

Post a Comment:




  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015

    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term

    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade
    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]