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A Giant Sucking Sound From Seoul

Reposted from The National Memo


A Giant Sucking Sound From Seoul

David Cay Johnston | March 26, 2013 | National Memo

Once again, the United States has made a foreign trade deal in which American factory workers get the short end of the stick.

This time, the gains are flowing to South Korea under a “free trade” agreement that President Barack Obama put in place last March 15.

A year ago the president hailed what he called the biggest “free trade” agreement in two decades, much more valuable than the previous nine deals combined. He also said it would create about 70,000 American jobs.

The U.S. International Trade Commission predicted 15 months ago that U.S. exports to South Korea would grow at least 52 percent more than imports, creating tens of thousands of American jobs.

Well, the data are now in for the eight months of 2012 in which the deal was in effect. The good news is that trade in goods increased both ways over the same period in 2011, when adjusted for inflation.

The bad news: For every increased dollar of American exports to South Korea, our imports from there grew by $25.

As a result, our trade balance in goods during those eight months grew by almost half; we shipped $16.3 billion less in goods to South Korea than we bought, compared to $10.9 billion less in the same period in 2011.

To update Ross Perot’s 1992 presidential campaign criticism of the North American Free Trade Agreement’s Mexico provisions: That giant sucking sound you hear is American factory jobs going to South Korea.

We did a bit better in the trade for services, which range from legal and accounting to financial and computer services. According to the Bureau of Economic Analysis, we exported 10 percent more in services than we imported during the last nine months of 2012, which includes the two weeks before the agreement was implemented.

But the total value of services traded between the two countries amounts to less than a third of the value of goods traded, and the increased services trade offset less than 8 percent of the increased imbalance in goods traded. So overall, South Korea made out great while Americans lost jobs.

This imbalance is just what some of us predicted, based on both the specific terms of the agreement and the past history of such deals. Take Mexico for example. In 1993 we enjoyed a small trade surplus in the country, but now under NAFTA we have a trade deficit more than 25 times as large as that surplus was.

Similarly, our bilateral trade deal with China — which was sold to the public as a benefit for both countries — was officially projected to at worst cause a $1 billion annual trade deficit with China.

Our deficit in goods traded with China is now approaching $1 billion per day, not per year. Last year we imported almost $426 billion of Chinese goods, while exporting less than $111 billion, for a deficit of $315 billion.

Those figures are for goods only, not services. We did sell China more services than it bought from us in 2011, the most recent year for which data is available.  But we were in the black on services by just $15 billion, knocking only about 5 percent off the trade deficit in goods, and still leaving us in the position of sending China $300 billion more than we got.

The Economic Policy Institute, a Washington-based nonprofit research organization with a pro-worker bent, calculates that our China deal has cost 2.8 million jobs — the equivalent of laying off everyone in the greater Philadelphia market, including parts of New Jersey, Delaware and Maryland.

The Institute expects 150,000 Americans to eventually lose their jobs because of the deal with South Korea, a figure supported by all of the economic evidence to date.

One major source of misleading predictions on trade deals is an official government agency: the U.S. International Trade Commission. A year ago it predicted that exports of U.S. cars to South Korea would, eventually, “likely increase significantly.”

Last summer I spent the better part of a week in Seoul looking for American cars and interviewing government officials, drivers and car showroom salesmen (and they were all men). As this video I made for Reuters shows, finding an American car on the streets of Seoul is hard.

One reason for this is that South Korea negotiated four years of grade protection for its dominant automaker, which builds Hyundai and Kia. Those two models account for better than 9 in 10 cars sold in South Korea and close to 1 in 10 sold in America.

Sales of American-made, American-brand cars in South Korea? A fraction of 1 percent of the market. Add in American-made Toyotas, built in Ohio, and you get into one digit.

South Korean interests try to put a good spin on the situation, cherry-picking data and saying that we have not had enough time to fully assess the situation. The Korea Economic Institute notes that in the first 10 months of the agreement, U.S. exports of goods with reduced tariffs rose 2.2 percent. But adjust for inflation, which was a tad more than 2 percent, and that works out to no real growth.

American trade officials — whose high-paying jobs depend on such deals and the combination of rule making, deal making and litigation they spawn — are guilty of the same cherry-picking techniques.

The U.S. Trade Representative’s office proclaimed that things look good, because it reported full-year data even though the trade agreement was in effect for only eight full months. It removed exports that declined from its data, and it issued a statement that not once mentioned imports.

Trade, with fair rules, can make us all better off. But there is no such thing as “free trade,” as the South Korean government knows full well. That is why it negotiated four years of protection for its auto industry, giving it an advantage until at least 2016.

But for now our trade deals are beyond lousy. We ran a trade deficit in goods last year with 100 countries, as the United States International Trade Commission’s reports show. We ran surpluses with 103 other countries, but those surpluses were only a sixth the size of the deficits.

And as far as South Korea goes, that our trade imbalance in goods grew from $1.32 to $1 in the last eight months of 2011 to $1.48 last year is just part of the story. We’re also paying to keep 37,000 American servicemen there as well as providing naval, air and satellite military services.  In other words, Americans are taxing themselves to send jobs to South Korea, both civilian and military.




2 Responses to “A Giant Sucking Sound From Seoul”

  1. Mo says:

    As long as the central planners in Washington continue to have access to unlimited money creation out of thin air which can bail them out, income inequality, wage stagnation and bad trade deals that don’t effect them will only continue. Mass fffshoring like it has occurred today wouldn’t have been possible under the classical gold standard or the Bretton Woods system.

    There is growing movement of public state banks based on North Dakota’s model. If every state had their own bank where they deposit money into, it would enable funds to be recycled within the state to fund infrastructure and industrial activity. Most states today have unemployment issues and fiscal deficits. The only state that hasn’t had these issues was North Dakota. Some say it’s because of their oil boom but the state was doing fine before the oil boom and other states that have more natural resources are in worse shape.

    The benefit of public state banks is that it allows states to do what’s in their best interest. It’s better to keep the money within state then to deposit the funds in some bank that may possibly fund offshoring overseas.

  2. Joe Brooks says:

    South Korea is not the only Korea benefiting from this trade agreement. Red China’s colony is making plenty too, just like their parent nation is from corrupt crony capitalism “free trade”.

    North and South Korea have been sharing some slave labor for years, now.

    “A spokesman for the North’s office controlling the Kaesong industrial complex said Saturday that it would close the factory park just across the border in North Korea if South Korea continued to undermine its dignity.

    Pyongyang expressed anger over media reports that said the factory remained open because it’s a source of hard currency for the North.”


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