Trade policies in focus as Obama makes State of the Union address

As President Barack Obama makes the annual state of the union address to the nation tonight, issues like jobs, exports, competitiveness and trade deals will hog much of the limelight.

Public Citizen, a national, nonprofit consumer advocacy organization, says a lot of trade policies in the past have not resulted in better jobs and exports opportunities. It has published its arguments on how past policies have failed to give succor to the ailing economy. These arguments will help people place in perspective the points President Obama is likely to raise in his state of the union address themed around winning the future', according to the group.

1. Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done. The question is how to expand trade in a way that creates U.S. jobs. Under past trade policies and pacts, the U.S. has served as the target market for imports from around the world. This has resulted in a huge trade deficit – $810 billion before the economic crisis-related collapse in trade and now again rising.

2. U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs: President Barack Obama is expected to urge passage of more FTAs as a means to boost exports and create U.S. jobs. However, Public Citizen examined the relative U.S. export growth with the 17 countries with which we have FTAs to date and found, counter intuitively, that the FTAs are associated with an export growth penalty.

3. The U.S. International Trade Commission’s official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit: The USITC, the independent federal body that analyzes likely effects of trade pacts for Congress and the executive branch, found that the Korea FTA would result in an increase in the total U.S. goods trade deficit of between $308 million and $416 million.

4. Korea FTA’s chief U.S. negotiator admitted it would not be a boon for U.S. exports: Ambassador Karan Bhatia noted in a speech to a Korean audience that it was a “myth” that “the U.S. will get the bulk of the benefits of the FTA.”

5. Beware of administration claim that the Korea FTA will “support” 70,000 jobs: President Obama’s use of the term “support” is critical, as noted in a New York Times story, “Few New Jobs Expected Soon from Free-Trade Agreement with South Korea.” The core question is what net effect the Korea FTA will have on U.S. employment.

5. EPI projects American job losses from the Korea FTA at 159,000: A study by the Economic Policy Institute found that implementation of the Korea FTA would boost the U.S. trade deficit with Korea by $13.9 billion over the next seven years.

6. The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.

7. The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing:

8. Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit: At first glance the USITC study seems to suggest that the U.S. trade balance in goods (also known as merchandise) will improve by between $3.3 billion and $4 billion because this is the projected change in the bilateral trade balance with Korea. However, due to the way that bilateral trade pacts affect global trade flows, the Korea FTA’s results for overall U.S. trade balance in goods are dramatically different from the change in the bilateral balance with Korea.

9. The auto manufacturing industry may lose a significant number of workers due to the Korea FTA: The USITC study projected that once tariffs are phased out, the sizable bilateral trade deficit with Korea in autos and auto parts (Korean sent 500,000 autos here in 2010 while the U.S. exported less than 6,000 to Korea19) would increase by up to $1.3 billion.

10. Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out: Given Korea’s past history of significant currency manipulation, it is worth noting that if Korea again devalued its currency, it could effectively cancel the benefits of the tariff cuts.