President Obama tried to appease free-trade critics during his State of the Union address, saying, “Look, I’m the first one to admit that past trade deals haven’t always lived up to the hype.”
Since then, critics of the president’s trade agenda, which includes passing the Trans-Pacific Partnership, a 12-nation free trade deal in the Pacific Rim, have repeatedly used the comment to justify their opposition.
“So, what’s going to be different this time?” Sen. Ron Wyden, D-Ore., asked U.S. Trade Representative Michael Froman after citing Obama’s comment during a Senate hearing last week.
Froman replied the president meant that the U.S. would “learn from the experiences of the past” and pursue stronger labor and environmental provisions in the new deals. The administration hopes the promises will win over wavering Democrats.
“This is 2014 — not 1994 — but unfortunately many critics of international trade don’t acknowledge that,” an administration source told the Washington Examiner.
A look at some prominent promises by top administration officials regarding three major prior deals and how they are faring reveal that the U.S. has benefited from the agreements, but its partner countries have benefited too, perhaps more than the U.S. did. Trade advocates argue that it is not a zero-sum game, though, and everyone can win.
North American Free Trade Agreement, 1994
The deal: NAFTA eliminated trade barriers among the U.S., Canada & Mexico.
The hype: Vice President Al Gore, in a 1993 CNN debate with H. Ross Perot: “Mexico bought 750,000 new cars last year. The Big Three sold them only 1,000, because they have the same barriers against our cars. Those barriers will be eliminated by NAFTA. We’ll sell 60,000, not 1,000, in the first year after NAFTA. Every one of those cars has four new tires and one spare. We’ll create more jobs with NAFTA.”
The facts: U.S. exports to Mexico did increase substantially in the years after NAFTA passed, though imports from Mexico rose even higher. That trade deficit remains and is growing.
U.S. auto exports to Mexico increased more than five-fold, rising from $237 million to $1.3 billion between 1993 and 1996, according to a 1997 White House study. Meanwhile, imports of cars from Mexico to the U.S. increased from $3.7 billion to $11.3 billion.
The trade gap has grown substantially since then. The U.S. imported $60 billion worth of cars, trucks and parts from Mexico in 2013, while it exported $21.6 billion south of the border.
U.S. exports of all goods to Mexico grew from $41.6 billion to $56.8 billion between 1993 and 1996, a 36 percent increase. Mexico’s exports to the U.S. rose from $40 billion to $74.3 billion over the same period, an 86 percent increase. Its share of the U.S. import market grew from 6.9 percent to 9.2 percent.
Today, the U.S. exports $221 billion in goods to Mexico while it imports $270 billion, resulting in a trade deficit of $49 billion, according to Census Department data.
Exports to Mexico and Canada combined were $526 billion in 2013, while total imports were $612 billion, resulting in a combined trade deficit of $86 billion, according to the trade representative’s office.
Trade advocates contend that the trade imbalance doesn’t mean the U.S. is losing out. The real measurement of success is whether trade has increased the overall U.S. economy.
“If you look at recent history, our trade deficit has risen at times of vigorous economic growth,” said John Murphy, the Chamber of Commerce’s senior vice president for international policy.
Besides, says one source, the U.S.-Mexico imbalance is misleading anyway. “The driver on our trade balance with Canada and Mexico … is fossil fuels. And that has nothing to do with NAFTA,” said the source. When energy is excluded, the U.S. had a $66 billion trade surplus with Canada and Mexico in 2013.
Central American Free Trade Agreement, 2004
The deal: CAFTA lowered trade barriers between the U.S., Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The main industries affected were sugar, agriculture and textiles.
The hype: President George W. Bush, in a June 2003 event with congressional leaders: “By passing CAFTA, the United States would open up a market of 44 million consumers for our farmers and small business people and entrepreneurs. By lowering barriers in key segments like textiles, CAFTA will put our region in a better position to compete with low-cost producers in Asia.”
The facts: U.S. exports to those countries increased overall, but again imports increased more. Overall exports increased from $14.7 billion in 2005 to $15.6 billion in the three years following the agreement, an increase of 6.5 percent. Imports from the other CAFTA countries rose from about $18 billion to $19 billion over the same period.
The U.S. trade representative’s office reports that overall trade between the countries has increased from $35 billion in 2005 to $60 billion currently, a 71 percent climb. Current exports and imports both total $30 billion, so the U.S. has no trade deficit with the CAFTA countries.
U.S. cotton producers exported 2.5 million bales to CAFTA countries in 2004, but that had fallen to about 2.2 million by 2012, according to the U.S. Cotton Council trade association in its 2013 economic outlook. However, imports from the CAFTA countries had fallen even further, from 3.5 million to about 2.3 million in the same period.
In terms of competitiveness with China, it was largely a wash, though overall trade between the countries increased. Chinese imports rose from 2 million bales in 2004 to 5.5 million by 2012. U.S. exports to China rose from 1 million in 2004 to 4.3 million in 2012.
U.S.-Korea Free Trade Agreement, 2012
The deal: Reduces or eliminates tariffs and other trade barriers between the U.S. and South Korea for numerous industrial goods and services.
The hype: U.S. Trade Representative Ron Kirk, in a March 2012 statement: “Tariff cuts will increase exports of American goods alone by $10-11 billion, supporting an estimated 70,000 jobs across the country. Export opportunities will also grow as the agreement opens Korea’s $580 billion services market, streamlines customs procedures, reduces red tape and better protects American intellectual property rights.”
The facts: In a House Ways and Means Committee hearing last week, Rep. Lloyd Doggett, D-Texas, pressed Froman on the deal: “Isn’t it accurate that while the administration claimed that there would be thousands of new jobs created through that agreement, that to-date we have actually experienced net job losses?”
Froman didn’t dispute Doggett’s claim, but said the key factor was that the Korean economy went into a downturn as the deal went into effect. He added that despite that, exports of U.S. goods to Korea have grown by 7 percent. That was driven by an 80 percent increase in auto exports, though he conceded this up “from a low base.” He added that the deal still being implemented. “Not all of the tariff cuts have been put in place.”
