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Richmans' Trade and Taxes Blog
The Trade Agreements Negotiated by the U.S. Have Been a Disaster for U.S. Workers. and the U.S. Economy
In seeking a Trans-Pacific free trade agreement, the U.S. is continuing a policy of seeking international trade agreements in spite of the fact that all of the agreements it negotiated since 1966 have converted the U.S. from the world's leading creditor nation to the world to the world’s leading debtor nation. In 1947, the U.S. began negotiations seek an international General Agreement on Tariffs and Trade (GATT). There were eight rounds of negotiation from 1947 to 1994. They had little effect on the U.S. trade balance until the Kennedy round, 1964-1966. The trade deficits exploded after the Uruguay round. 1986-1993, in which 123 nations participated and which created the World Trade Organization (WTO) which began operations in 1995. The creation of the WTO marked the beginning of the end of the USA as the world’s leading industrial power. The North American free Trade Agreement (NAFTA) with Mexico and Canada in 1993, the granting of permanent most-favored-nation trade status to China in 1980, the free trade agreement with Korea, all produced large trade deficits and cost millions of American jobs. These agreements led to a major exodus of U.S. manufacturing firms overseas.
The US ran a trade surplus in 1981 of $3.1 billion. By 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. The trade deficit peaked in 2006 at over $800 billion and in 2014 it amounted to $467.6 billion.
The U.S. Trade Act of 1974 required the President to withhold Most Favored Nation (MFN) status from countries that had not acquired that status by the time of the law’s enactment in 1975. It allows for the President to issue a yearly waiver to allow the granting of Permanent Normal Trade Relations (PNTR). In 1948 the United States joined the General Agreement on Taanriffs and Trade (GATT), the predecessor organization of the WTO.. In accordance with GATT provisions the United States agreed to extend what was then called Most Favored-Nation status (MFN) to China. Permanent status was accomplished in 1999, and China joined WTO in the following year, all of whose members enjoy PNTR status.
In a 2012 article, 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. Pierce and Schott show that U.S. manufacturing employment losses starting in 2001 are concentrated in industries where a failed annual re-approval would have resulted in the sharpest increase in tariffs. They also show that these same industries see a large rise in U.S. imports from China as well as in the number of U.S. firms that import from China. 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. Their analysis shows that these losses are due both to an absence of added continued to rise. “This large implied increase in labor productivity reflects changes both in the types of goods U.S. manufacturers produce as well as in the techniques they use to make them,” says Schott. job creation as well as heightened job destruction.
Given the near certainty under the WTO rules and 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 less technical products like automobile parts, clothing, housewares, etc. consumed in the U.S., causing U.S. manufacturing to decline and the loss of millions of jobs.
The Congress was well aware that the trade agreements would cause the unemployment of many American workers. The Trade Adjustment Assistance (TAA) Program is a federal program established under the Trade Act of 1974 that includes aid to workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. According to Wikipedia, the estimated annual cost of the program is $22 billion.
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. China was the principal favorite of the large U.S. multi-nationals, including Apple, GM,
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.
Following is a table that shows the U.S. Trade Balance since the beginning of GATT negotiations in 1947. The trade deficits took off in the 1980s and sky-rocketed after the WTO was established.
Clearly U.S. trade policy since 1947 has been a disaster for the U.S. economy and for American workers in particular.
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