Exploding 'Free Trade' Myths, and Ospama As Bush III

[Farnsworth,Luther P.]

Why Ospama's BS about 'creating 5 million new jobs' isn't going to happen.

Lies, Damn Lies and Export Statistics

I. SUMMARY AND FINDINGS

President Obama’s goal to double U.S. exports over the next five years to create two million new American jobs is widely supported. How to accomplish it is a subject of considerable contention.
Proponents of President Bush’s “Free Trade Agreements” (FTAs) with Korea, Colombia and Panama claim that passing these pacts is the best way to expand U.S. exports and create jobs.

Obama administration officials have similarly argued that passing FTAs is a key component of the effort to double exports, especially in the context of the president’s recent announcement that he wants Congress to pass Bush’s FTA with Korea early next year.1

Yet, analysis of the actual outcomes of past U.S. FTAs show that the growth of U.S. exports to countries that are not FTA partners is as much as double the growth of exports to U.S. FTA partners. Moreover, with respect to Obama’s job creation goal, the United States has suffered trade deficits with most of its major FTA partners and with the group of FTA nations as a whole. Even as trade flows declined because of the economic crisis, as of 2009, the United States had a $54 billion trade deficit in goods with its 17 FTA partners, even when oil is excluded. And, contrary to the frequent claims made by proponents of the North American Free Trade Agreement (NAFTA) that U.S. farmers have benefitted from this model, the United States’ agricultural trade deficit with the bloc of 17 FTA partners increased.

This highlights why, especially now, an honest, data-based discussion about the economic impact of FTAs based on the NAFTA model is critical. People are entitled to their own opinions about NAFTA-style FTAs, but they’re not entitled to their own facts.

Among public concerns about job loss, the decimation of the U.S. manufacturing base, and the ballooning U.S. trade deficit, corporate lobbyists have unveiled a series of misleading and erroneous
studies and talking points, alleging all sorts of benefits from NAFTA-style pacts. It is impossible to know whether these are deliberate attempts to distort the truth, or simply sloppy economics.
...

At the June 2010 G-20 summit in Toronto, President Obama and Korean President Lee announced that they had agreed to prioritize addressing outstanding issues with the U.S.-Korea FTA signed in
2007 by President Bush.2 President Obama instructed U.S. Trade Representative (USTR) Ron Kirk to work with his Korean counterpart to “set a path” so that the Korea FTA could be submitted to a vote in Congress.

This is a “critical step towards the goal of doubling U.S. exports over the next five years,” said the Business Roundtable.3 Other longstanding proponents of the Bush FTAs repeated this mantra.

Similar claims are being made to promote negotiation of a Trans-Pacific Partnership (TPP) based on the NAFTA model.i The main premise underlying these arguments is an endlessly repeated claim that the past U.S. NAFTA-style FTAs with 17 countries4 have resulted in tremendous export growth.5

The Data Do Not Support the Spin

However, examination of the actual data shows that the United States has generally had substantial trade deficits with most of its major FTA partners and with the group of FTA nations as a whole. Even as trade flows declined because of the economic crisis, as of 2009, the
United States had a $54 billion trade deficit in goods, excluding oil, with the bloc of 17 U.S. FTA partners. This contradicts recent claims made by the NAM that “over the past two years FTAs have resulted in a U.S. manufactured goods surplus of nearly $50 billion.” As we show,
NAM’s “surplus” looks at “total exports,” a measure that includes billions of mere “re-exports” of foreign products that are passing through U.S. ports and were not made by American workers. In
contrast, the U.S. International Trade Commission (USITC), the independent, non-political agency responsible for producing independent studies on the effect of FTAs on the U.S. economy, uses data on domestic exports, removing the transshipments [i.e. re-exports] that NAM’s calculation included.

When the correct export measure is used, the opposite result is produced: the trade balance in non-oil manufactured goods with U.S. FTA partners over 2008-2009 comes to a deficit of $97 billion. We examine this and other claims made by NAM in Section IV of our report, and claims made by the Chamber of Commerce in Section III.

Moreover, a close look at trade data over the past ten years reveals that the growth of U.S. exports to countries that are not FTA partners has far outpaced the growth of exports to FTA partners.6 We examine trade data since 1998, consistent with the latest Chamber of Commerce report on FTA export growth that uses data from the period 1998-2008.We found that:

• Between 1998 and 2008, U.S. goods exports to FTA partner countries grew by an annual average rate of only 3.0 percent. Goods exports to non-FTA partner countries, by contrast, grew by 4.2 percent per year on average. (The 2008 end date is used to show the trend before the overall falloff in trade flows related to the global economic crisis.) For convenience, we call this phenomenon the FTA export growth “penalty.” We do not claim that there is a causal link
between export growth and FTA implementation, unlike proponents of FTAs. Rather, we simply report the actual outcomes with respect to exports of the past U.S. FTAs, given misrepresentations about them now figure prominently in arguments in favor of passing more
pacts based on the same model.

• The picture looks especially grim if one looks at the 1998-2009 period. Throughout this longer period, which includes the year in which the global economic crisis peaked, goods exports to FTA countries grew by an average of only 0.8 percent per year. This compares with a growth rate of 2.2 percent year for U.S. exports to non-FTA countries – double that rate.

• Defenders of the past U.S. FTAs regularly claim that these pacts’ existence helped avoid a worse falloff in trade related to the global economic crisis. In fact, in 2009, exports to FTA countries shrank 21.1 percent, while exports to non-FTA countries shrank only 18.4
percent.

• The FTA export growth “penalty” significantly impacts several sectors of the economy, with the rate of export growth in services and manufacturing with U.S. FTA partners taking a hit over 1998-2009. Manufactured exports to non-FTA partners grew by an annual average of 1.7 percent over 1998-2009, while manufactured exports to FTA countries grew by an annual average of only
0.1 percent.

While the U.S. government does not release detailed country-by-country services data, it does release numbers for 34 countries, including the most important U.S. services trade partners. When we compare the FTA countries to the non-FTA countries in this subset, we find that the FTA services export growth rate is 5.5 percent and the non-FTA export growth rate is 5.7 percent over 1998-2008. This considers data up to 2008 – the most recent
available.

• If the difference between the FTA and non-FTA export growth rates for goods for each year were put in dollar terms, the FTA “penalty” would be as high as $33 billion in 2007, while the FTA “benefit” (i.e. where the FTA export growth rate was higher than the non-FTA export growth rate) occurred only in four of eleven years and would only reach as high as $24 billion in1999.

Summing these dollar differences in each year over 1999-2009 totals to a “penalty” of $72 billion.7 For manufacturing, agriculture and services, the comparable “dollar penalties” are $59 billion, $2.7 billion, and $6.9 billion, respectively.

http://www.citizen.org/Page.aspx?pid=4398

Download the pdf at the link for the study. Bush III really means he's going to export 5 million more jobs overseas.

[9ball8]

Not to worry. Ricardo's economics requires that it all evens out between nations as their labor gains the same conditions (wages, benefits) as counterparts in curently developed countries. At that point, middle income, union-dominated working class folk will provide and purchase value-added goods and services in the rest of the world. Employers & employees alike use local resources to gain unique advantages for their particular country, while enjoying a varied basket of valuables from other countries whom also enjoy distinct advantages in their production.

Of course, if certain other countries use authoritarian means to determine advantage, Ricardo's hypothesis' turns to shit. Examples: communist/fascist slave labor (no independent organized labor permitted); oligarchies distorting a capitalist economy (monopoly or cartel control of goods/services), or many other ways to distort free association between labor, material resources and owners in the production of goods/services.

If FTA's were treated with skepticism and subject to revision or extinction whenever perversions of a normal market show themselves, I would be OK with them. But that has not happened. Murdered labor activists in Columbia or China should be an obvious and immediate cause for nullifying their FTA, for example.

[Farnsworth,Luther P.]

Not to worry. Ricardo's economics requires that it all evens out between nations as their labor gains the same conditions (wages, benefits) as counterparts in curently developed countries. At that point, middle income, union-dominated working class folk will provide and purchase value-added goods and services in the rest of the world. Employers & employees alike use local resources to gain unique advantages for their particular country, while enjoying a varied basket of valuables from other countries whom also enjoy distinct advantages in their production.

Of course, if certain other countries use authoritarian means to determine advantage, Ricardo's hypothesis' turns to shit. Examples: communist/fascist slave labor (no independent organized labor permitted); oligarchies distorting a capitalist economy (monopoly or cartel control of goods/services), or many other ways to distort free association between labor, material resources and owners in the production of goods/services.

If FTA's were treated with skepticism and subject to revision or extinction whenever perversions of a normal market show themselves, I would be OK with them. But that has not happened. Murdered labor activists in Columbia or China should be an obvious and immediate cause for nullifying their FTA, for example.

Economics is just a subset of politics, and not a real science, hence pretty much all 'hypothesises' are by definition 'shit', which is why in the 19th Century the field was called 'Political Economy' in colleges and universities. Only governments can pass statutes, not economists.

As for China, for instance, the 'new middle class' is almost entirely the same as the old 'middle class' under Mao, i.e. Party functionaries and their relatives, and it's pretty much the same everywhere else more or less, at least outside the U.S. and Europe, thus most of the so-called 'rules' of economics don't even come close to reality, not to mention technology and the massive increases in productivity have made most theories obsolete and no more valuable than astrology or Madame Cleo when it comes to predicting anything.

And, of course, 'free trade' and the 'efficient markets' theories ultimately lead to zero profits and therefore the bankruptcy of businesses as their ultimate conclusion, removing any incentive for anybody to start up a business in the first place, so there is no small amount of cognitive dissonance in touting up such theories and mindless following them to their logical conclusions, and making them a national policy is just suicide.

As for 'oligarchies', the fact is monopolies are much better at producing goods cheaply than unfettered competition is, which is why John D. Rockefeller once said 'Competition is a sin'. And he has been proven right over and over again.

[Farnsworth,Luther P.]

Another effect of NAFTA style 'trade' agreements:

Immigration and Trade

While many pundits and politicians focus on the immigration debate by talking about closing down the U.S.-Mexico border, few care to confront the root cause of the issue: the failure of the NAFTA model to provide sustainable livelihoods for Mexican workers in Mexico.

Over a million Mexican farmers lost their livelihoods due to NAFTA-mandated agricultural policy changes in Mexico, while nearly everyone with a job in Mexico saw their real wages decline during the NAFTA-WTO decade. These are just some of the reasons why one-in-ten of Mexico's citizens have made the often dangerous border crossing to the United States.

http://www.citizen.org/Page.aspx?pid=1407

Also from the page linked to above:

In the United States, the era of Fast Track, the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and NAFTA-style expansion agreements has seen economic stagnation, a net loss of quality jobs, and wages barely keeping pace with inflation. For example:

* U.S. wages have barely increased in real terms since 1973, the year Fast Track was first passed, even as worker productivity doubled. In 1973, the median hourly wage for American workers in today’s dollars was $17.26, while in 2007 it was up less than 1 percent to $17.42. Over the same period, U.S. workers’ productivity nearly doubled. Increasingly, even economists who defend status-quo trade policies are attributing a significant share of this unprecedented disconnect between American workers’ productivity and their real wages to a form of "labor arbitrage."
* Trade policy holds back wages even of jobs that can’t be offshored. Economists have known for over 60 years that all workers with similar skill levels — not just manufacturing workers — will face downward wage pressure when U.S. trade policy creates a selective form of "free trade" in goods that non-professional workers produce. When workers in manufacturing are displaced and seek new jobs, they add to the supply of U.S. workers available for non-offshorable, non-professional jobs in hospitality, retail, health care and more. Thus, proposals to retool U.S. trade adjustment assistance programs, while welcome, do not address the most serious impact of America’s trade policies, which is not just on those workers who actually lose jobs, but on the majority of American workers who see their wages stagnate.

http://www.citizen.org/Page.aspx?pid=2124

Follow the link 'Prosperity Undermined: Economic Outcomes During the Era of Fast Tracked NAFTA and WTO Model Trade Agreements.'

[Farnsworth,Luther P.]

More effects of NAFTA on Mexico:

As part of the effort to obtain the passage of Fast Track authority And IMF refunding, , the Trade lobby is arguing the "success" of the bail Out package for Mexico following the collapse of the foreign exchange value of the peso beginning in December 1994. In order to portray NAFTA and the Bailout as pointing to the road to future global prosperity the Trade Lobby has promoted several "spin" themes:

BAILOUT MYTHS

(1) "The peso crisis that led to economic catastrophe for Mexico was caused by the monetary mismanagement of the Mexican Government and had nothing to do with NAFTA."

FACT: The peso crisis was directly linked to the NAFTA movement and would not have occurred without NAFTA. This is discussed in part 1 of this article.

(2) The bailout has resulted in restoring the Mexican economy.

FACT: The large Mexican multinational corporations have recovered and their stock prices are at new high levels. However, the domestic economy remains at Depression levels with real wages over 25% below the pre-NAFTA level and over 2 million lost jobs in the domestic economy These are part of the harsh conditions imposed by the Mexican Govt. in response to the demands of the US and the IMF, Mexico's leading creditors.

(3) Mexico has paid all of it's debts from the Peso crisis.

FACT: Mexico's external debt (denominated in hard foreign currencies) is at record high levels and many Mexican and foreign observers believe that default ( or "restructuring") in some form is inevitable. Mexico has simply "rolled over" its debt as it became due or paid using funds from new foreign borrowings. By various paper manipulations and new borrowings at even higher rates Mexico has repaid the portion of the bailout, $11+ Billion, that was actually loaned from the U.S. Treasuries "Exchange Stabilization Fund". This is simply smoke and mirrors. The total amount, public and private, owed By Mexico to foreign institutions is over $170 Billion of which over $ 40 Billion is owed to U.S. institutions including the government. Japan, which has made large investments in moving its electronic and auto manufacturing to Mexico's maquiladoras (where the products have unlimited free access to the U.S. market) has become a major lender to Mexico.

MAJOR MEXICAN CREDITORS (as of June, 1997)

U.S.A. - $42 Billion
Japan - $28 Billion
IMF - $17 + Billion
World Bank, B.I.S., etc. - $13 Billion

http://www.cooperativeindividualism....ftaimpact.html

And, while this Wiki article tries to avoid pointing out the obvious, that NAFTA and other 'free trade' scams are merely back door bail outs for big banks ...

The Mexican "bailout" attracted criticism in the US Congress and the press for the central role of the former Co-Chairman of Goldman Sachs, U.S. Treasury Secretary Robert Rubin. Rubin used a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key distributor.[4] In late 1995, Patrick Buchanan wrote "[n]ewly installed President Ernesto Zedillo said he needed the cash to pay off bonds held by Citibank and Goldman Sachs, lest the New World Order come crashing down around the ears of its panicked acolytes."[5] According to Hannibal Travis, the "former manager of $5 billion in Mexican investments at Goldman Sachs became U.S. Secretary of the Treasury and lobbied for legislation that forced U.S. taxpayers to contribute in excess of $20 billion to bail out investors in Mexican securities, in a form of 'corporate socialism'".[6]

The United States' assistance was provided via the treasury's Exchange Stabilization Fund. This was slightly controversial, as President Bill Clinton tried and failed to pass the Mexican Stabilization Act through Congress. However, use of the ESF allowed the provision of funds without the approval of the legislative branch. At the end of the crisis, the U.S. actually made a $500 million profit on the loans.[7]

http://en.wikipedia.org/wiki/1994_ec...isis_in_Mexico

Indeed ... privatizing profits while socializing the costs ... what a plan.

[Cyclone Ranger]

Economics is just a subset of politics, and not a real science

According to who? You?