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The Consequences of the Trade Agreements

Both houses of Congress passed the three trade agreements with Colombia, Panama, and South Korea yesterday. Clyde Prestowitz explained last week why there is nothing worth cheering about here: Of course, the Colombian and Panamanian agreements don’t matter much one way or the other because the economies of the two countries are so small. But […]

Both houses of Congress passed the three trade agreements with Colombia, Panama, and South Korea yesterday. Clyde Prestowitz explained last week why there is nothing worth cheering about here:

Of course, the Colombian and Panamanian agreements don’t matter much one way or the other because the economies of the two countries are so small. But the Korean deal will not produce thousands of new American jobs.

Indeed, the Korean FTA is far more likely to increase the trade deficit to the detriment of the U.S. economy:

What neither the administration nor the Times is reporting is that the International Trade Commission has estimated that despite this increase in U.S. exports, the overall effect of the agreements will be to increase U.S. imports by more and thus to increase, not reduce, the U.S. trade deficit. One can understand why the administration might not want to highlight that point, but it is baffling and suggestive of ideological free trade bias that the proud New York Times does not report it.

Prestowitz repeats his argument that preferential trade agreements of the kind represented by these three deals are of little value because they fail to address the real barriers to trade today:

The deals won’t create the predicted jobs because they don’t deal at all with two major issues – currency manipulation and national export led growth strategies. Global tariffs are already quite low and can easily be outweighed in importance by movements in currency values. Countries like South Korea that manage and manipulate their currencies and that also use official administrative powers to accumulate trade surpluses as a matter of national security policy simply do not allow their imports to soar in uncontrolled fashion.

Meanwhile, the Colombian FTA is mainly going to benefit U.S. agribusinesses and large landowners in Colombia at the expense of small Colombian cultivators. That isn’t just a problem for Colombia’s rural poor. Earlier this year, Prestowitz described the probable effects of the adoption of the Colombian deal:

Big, subsidized U.S. agriculture will have free run of the market. Far from finding new licit jobs, displaced Colombian small-scale farmers may well be forced to find more illicit jobs in coca growing and cocaine making.

While it is frequently billed as a “reward” to an allied government, the deal seems more likely to contribute to undermining Colombian stability through the dispossession of poor cultivators and possibly boosting narco-trafficking.

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