The most ambitious 'high-standard' trade agreement in history before the Trans-Pacific Partnership was NAFTA. It delivered on increased U.S. exports but failed in at least one critical area.
The Trans-Pacific Partnership is usually described as the largest U.S. trade agreement since NAFTA, which came into effect in 1994.
The year before, 1993, the United States ran a $1.7 billion goods trade surplus with Mexico, according to Census data. By 1995, it had flipped to a $15.8 billion trade deficit. Last year, the deficit with Mexico was more than $53.8 billion. Last year, the United States also ran a $34 billion deficit with Canada
U.S. exports did grow, to more than $240 billion last year, compared with $41.6 billion in 1993 (all amounts are in nominal dollars; adjusted for inflation, the 1993 figure would be about $68 billion in 2014 dollars).
Officials in the Bush and Clinton administrations made many promises about NAFTA: that it would staunch illegal immigration, create more good U.S. jobs than it killed and make a big dent in the overall trade deficit thanks to expanding surpluses with Mexico and Canada. I was covering the trade deal at the time and interviewed top trade officials of both administrations. They also sold it as an advanced, high-standard deal that would lift Mexico from the Third World to the First World.
With the U.S. as the world’s largest exporter then and having heavily benefited from lower tariffs with trading partners, the assurances were credible.
This is not the place to relitigate NAFTA (here’s a good start), only to make the point about the trade deficit. We should expect little different from TPP, even if it increases exports.
A similar lesson is playing out with the South Korea-U.S. Free Trade Agreement (KORUS). The U.S. trade deficit with Seoul was $10 billion in 2010. In 2014, nearly three years after the agreement went into force, the deficit was more than $25 billion. U.S. exports have grown much more modestly than has been the case to Mexico. South Korea has a robust export-driven economy and is perhaps the world’s most egregious currency manipulator to further its export interests.
The trade deficit means lost American jobs, especially those in well-paying industries. Overall, trade creates some jobs, eliminates others. The same is true for managed-trade deals such as NAFTA and KORUS. But with a world of cheap labor, American manufacturers have sent many better-paying jobs overseas and closed factories here. This also depresses wages here.
TPP is sold as a “high-standard” agreement. But would it do what NAFTA didn’t? We can’t say for sure because the complex agreement is secret. But history suggests more of the same.
Today’s Econ Haiku:
It is what it is
Sky high executive pay
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