The recession and prolonged joblessness have led to a rise in protectionist sentiment, and no politician has stood up forthrightly to advocate for open markets and unrestricted trade. Nor is there a special interest group — a Patriotic Americans for Free Trade, say — that could launch a major television campaign to shape public opinion. ~Matt Continetti
Yes, the poor supporters of free trade agreements are really struggling to get their message out there. If only their arguments could be heard, that would turn things around! More information about free trade agreements wouldn’t do much to reduce popular opposition to them. Indeed, the more one learns about the Korean free trade agreement, the clearer it is that it is a bad deal for the U.S. For one thing, people whose communities have been affected or devastated by off-shoring and de-industrialization aren’t likely to believe the argument that free trade is beneficial. Even if the disruptions and losses that they have experienced were “made up” somewhere else in the country, that’s happening somewhere else and it doesn’t do those communities any good.
As for opening up markets, passing the sort of bilateral free trade agreement proposed with South Korea probably isn’t going to achieve much of anything in terms of opening up the South Korean market:
Even in cases where topics are nominally covered by the FTAs, the truth is that the FTAs may be largely meaningless. This is especially true for intellectual property and market opening. The proposed FTA between South Korea and the United States is a good example of both issues. It contains very strong language with regard to increasing protection of intellectual property. But the Korean legal system has demonstrated that it may rule otherwise. Over the past 15 years, for example, patents granted by the Korean patent office to FormFactor, an American company, for its probe cards (a device for testing semiconductor wafer circuits), were nullified by the Korean courts. This was not particularly surprising; Korean courts rarely rule in favor of non-Korean companies. Obviously the language of an FTA is pretty meaningless if a nationalistic legal system refuses to uphold it. In these circumstances, it does not make any difference what kind of FTA a country concludes; it will not achieve anything close to free trade.
FTAs are also meant to open markets, meaning that in any particular market, domestic and foreign producers are able to operate under the same conditions. Indeed, these deals are supposed to grant a sort of local treatment to nonlocal entrants into the market. Clearly, to sell a product in a given country, a producer must be able to get its products in front of the customer. Yet these FTAs never guarantee that. Take autos, for example: To sell them, an automaker must find dealers who will put the cars in their showrooms, service them, and market them. But in most countries, auto dealers don’t sell multiple brands. So even if auto tariffs are slashed to zero, in many countries imports of foreign cars won’t rise much because there are no or few dealers who will actually put the cars on their lots.
Continetti’s claim that the delay of these free trade agreements is one of the things holding back the economy is to be expected, but it’s not true. Clyde Prestowitz explained the flaws of the Korean agreement back in April:
If the economic gains from the Latin deals are likely to be small, they at least can be said to be real for both sides. In contrast, it is not clear that the proposed FTA with South Korea will produce any net gains for the United States at all. The U.S. International Trade Commission has calculated that the result of the proposed U.S.-Korea FTA is likely to be an increase in the overall U.S. trade deficit. And this is without accounting for the fact that South Korea’s currency management policies can easily offset any tariff reduction that may be made. Of course, some U.S. companies might benefit from the arrangement, but for the United States as a whole, any increase in its trade deficit at this time of high unemployment will only contribute to a further increase in the unemployment.
Prestowitz has also argued that all of these bilateral trade deals on tariffs miss out on the most important barriers to exchange. To take just the most obvious example, free trade negotiations of all kinds ignore the role of currency manipulation:
But dueling FTAs is the least of the problems. Far more significant is the question of whether any of our free trade negotiations, be they in pursuit of FTAs or in pursuit of new global arrangements under the auspices of the WTO, have any relevance to the actual problems in the global economy.
Take the question of exchange rates. FTAs, as well as all the WTO negotiations, including the Doha round, focus on tariff reduction and protection of intellectual property. Yet manipulated exchange rates can have a far greater effect on imports and exports than the tariffs that are so laboriously negotiated. Brazil, China, Japan, Malaysia, South Korea, and Switzerland all intervene in international currency markets to keep their currencies undervalued as a kind of indirect subsidy for their export-led economic growth strategies. Currencies can swing by 20 to 30 percent in the course of a few months, easily wiping out tariff reductions that might be equal to 2 to 5 percent of the cost of a product. Cordoned off as the domain of banks and finance ministries, one of the single most important determinants of trade is thus left out of discussions altogether.
Advocates for “open markets and unrestricted trade” might be able to persuade a few more people to see the merits of free trade if they didn’t endorse such flawed agreements that don’t do much to open markets or eliminate the most significant barriers to trade.