Bush Administration’s “Free Trade” Policies Lead to Trade Deficit, Job Loss

“Free trade” has been sold to the U.S. public and workers in the U.S. as a cure for all that ails us. Proponents of so-called free trade agreements like the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and the granting of permanent normal trade relations to China have claimed that these agreements would create high-paying, export-related jobs here in the United States, bring prosperity to developing countries, and spur economic growth and political stability worldwide. The outcome has been quite different.

Since NAFTA and the WTO were put in place (1994 and 1995, respectively), the United States has lost over 3 million jobs, according to estimates by the Economic Policy Institute (EPI) based on calculating the employment impact of changes in the U.S. trade balance. Most new jobs are in the low-paying service sector, particularly temp and retail.

Meanwhile, “free trade” has brought mixed results to many developing countries–often spurring growth in investment and trade flows but failing to improve wages and working conditions for the typical worker or small farmer. Global economic growth has slowed, not accelerated, in the past two decades of increased trade and capital liberalization compared to the previous two decades, 1960-1980.

Overall Trade Picture

T he U.S. trade deficit in goods hit an all-time record of $549 billion in 2003, meaning that we imported over half a trillion dollars more worth of goods last year than we exported. A trade deficit of this magnitude stems from national economic policies that have utterly failed in almost every dimension. U.S. trade and tax policies encourage and reward companies that move jobs overseas to take advantage of workers who are denied their basic human rights. The overvalued dollar puts domestic producers at an impossible disadvantage. And unfair trade practices by other countries keep our goods out of overseas markets.

The overall trade deficit in both goods and services represents a drag of almost 5% on U.S. economic growth, slowing any possibility of strong economic recovery and undermining future job growth. The high import propensity of the U.S. economy means that even as economic recovery gets underway a large proportion of every dollar spent by consumers goes to purchase imports, thereby undermining the economy’s ability to generate good jobs at home.

These figures are very real to working Americans who are losing family-supporting jobs and benefits as manufacturing and even service jobs are lost overseas.

This year’s trade figures reveal startling weaknesses in the U.S. economy, even in those areas that have traditionally been considered U.S. strongholds, like services and advanced technology products. The trade surplus in services plunged from $80 billion in 1999 to $60 billion in 2003. In advanced technology products, similarly, the U.S. surplus of $4.5 billion in 2001 turned into a whopping deficit of $17.5 billion in 2002, rising to $27 billion in 2003. These trends call into question the conventional wisdom that the United States enjoys a permanent and growing comparative advantage in the export of services and high-technology goods.

Job Creation or Job Destruction?

In general, the experience of our unions and our members with past trade agreements has led us to critically question the extravagant claims made on their behalf. While these agreements are touted as market-opening agreements that will significantly expand U.S. export opportunities (and therefore create export-related U.S. jobs), the impact has more often been to facilitate the shift of U.S. investment offshore. Since these agreements contain far-reaching protections for foreign investors, it is clear that facilitating the shift of investment is an integral goal of these “trade” agreements. Much, although not all, of this investment has gone into production for export back to the United States, boosting U.S. imports and displacing rather than creating U.S. jobs.

The net impact has been a negative swing in our trade balance with every single country with which we have negotiated a free trade agreement to date. While we understand that other factors influence bilateral trade balances (notably, growth trends, and exchange rate movements), it is nonetheless striking that none of the FTAs the U.S. has signed to date has yielded an improved bilateral trade balance, including Israel, Canada, Mexico, and Jordan.

The case of NAFTA is the most striking. Advocates of NAFTA promised better access to 90 million consumers on our southern border and prosperity for Mexico , yielding a “win-win” outcome. Yet in ten years of NAFTA, our combined trade deficit with Mexico and Canada has ballooned from $9 billion to $95 billion. The Labor Department has certified that more than half a million U.S. workers have lost their jobs due to NAFTA, while the Economic Policy Institute puts the trade-related job losses at almost 900,000. Meanwhile, in Mexico , real wages are actually lower than before NAFTA was put in place, and the number of people in poverty has grown.

Since Congress granted China permanent normal trade relations in 2000 and China acceded to the WTO, the U.S. trade deficit with China has grown close to 50%, hitting a staggering $124 billion last year–our single largest bilateral deficit. Meanwhile, the Chinese government continues to arrest and brutally repress workers who advocate for independent unions or better working conditions.

If the goal of free trade agreements is truly to open foreign markets to U.S. exports (and not to reward and encourage companies that shift more jobs overseas), it is clear the strategy is not working. Before Congress approves new bilateral free trade agreements based on an outdated model, it is imperative that we take some time to figure out how and why the current policy has failed.

Free Trade or Fair Trade?

The AFL-CIO believes that increased international trade and investment can yield broad and substantial benefits–to American working families as well as to our sisters and brothers around the world–if done right. Trade agreements must include enforceable protections for core workers’ rights and must preserve our ability to use our domestic trade laws effectively. They must protect our government’s ability to regulate in the public interest, to use procurement dollars to promote economic development and other legitimate social goals, and to provide high-quality public services. Finally, it is essential that workers, their unions, and other civil society organizations be able to participate meaningfully in our government’s trade policy process, on an equal footing with corporate interests.

The Bush administration has the worst job creation record since Herbert Hoover. Unfortunately, we see little evidence that this administration has learned from the mistakes of past failed trade policies. Instead it has prioritized corporate investment rules at the expense of workers’ rights, and is determined to replicate these mistakes in the Free Trade Area of the Americas (FTAA) and the bilateral and regional agreements presently being negotiated. If we do not dramatically reform these failed trade policies, soon many more Americans will be counted among the unemployed and the “working poor.”