A new Economic Policy Institute Issue Brief by Robert Scott reports that the South Korea-U.S. Free Trade Agreement has led to an increasing trade deficit with that country. As Scott points out, we have seen multiple administrations make promises about trade deals that are not borne out by the facts. I have pointed out elsewhere that this has been the truest for our biggest trade deals, such as normalizing trade relations with China and the North American Free Trade Agreement. While a number of our smaller trade agreements have seen an improved trade balance, the largest ones, including that with South Korea, have seen worsened trade results.
David Cay Johnston wrote last year that the U.S. International Trade Commission predicted that the United States would maintain its trade surplus with Mexico post-NAFTA, and run only a $1 billion trade deficit with China. Instead, he notes, the actual figures for 2011 were a $64.5 billion deficit and a $295 billion deficit, respectively. Based on the first two months of trade data, Johnston predicted that the South Korea trade deficit would worsen in the wake of that trade deal. While the third month (June 2012) saw a big improvement for the United States, events since then have proved Johnston right.
Here is the data on U.S.-Korean trade in goods from the U.S. Census Bureau. As we can see, in just about every month the trade deficit is worse than a year earlier. The agreement went into effect in March 2012, so we begin in April 2012.
In only two of the 14 months was there an improvement in the bilateral trade deficit, and it has been eight months since the last monthly improvement. Things aren't looking good for this prediction.
The consequence, of course, is that increasing trade deficits mean less domestic labor demand and result in job loss. The Economic Policy Institute estimates that the trade deal with South Korea has already cost the country 40,000 jobs. Moreover, as we know from the Stolper-Samuelson Theorem, we expect trade agreements to be bad for labor in the United States since it is a labor-scarce country.
But we keep making new "trade" agreements (which usually go beyond trade to include major investment provisions plus intellectual property rules) despite the evident pressures on the middle class that have been building up for decades.
Kenneth P. Thomas is professor of Political Science and fellow in the Center for International Studies at the University of Missouri-St. Louis. He is the author of "Competing for Capital: Europe and North America in a Global Era" and "Investment Incentives and the Global Competition for Capital." He blogs at Middle Class Political Economist.