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Thursday, August 13, 2015

Does the Third Way get it right about our Trade Deficit with Asia?

Third Way is incredibly influential with establishment Democrats. Rank and File Democrats don't always feel the same. So I wanted to critique their articles so people I know can make an intelligent decision.

In an Article titled "Losing Ground in Asia: Why the U.S. Export Market Share Has Plummeted" by Third Way the authors note that despite the Obama's efforts to do an "Asian Pivot" - that includes his push of the Trans Pacific Partnership treaty - we have not only not gained ground, we've lost ground on exports. They claim:

"Despite this policy shift, when it comes to economic performance in Asia, America is failing." [3rdWay]

They then provide a report:

"This report examined 26 entities (25 countries, including the United States, as well as the combined rest of world) and their share of the Asian import market from 2000 to 2014." [3rdWay]

They claim:

  1. The Asian import market grew by 261% between 2000 and 2014, from $1.5 trillion to $5.4 trillion.
  2. Despite the Asian market boom, the U.S. market share fell by 46%, the biggest drop of any of the 25 largest exporters into Asia except Japan.
  3. While U.S. market share in Asia is fading, China has been the largest beneficiary.

They then use this decline in Market share as an argument:

"Over the next several months, the United States and 11 nations are expected to conclude negotiations on the TPP. This is a sure fire way to increase U.S. market share in these important Asian economies. The global economy is projected to grow by over $60 trillion in the next 15 years, and almost 90% of that will occur outside of the United States, making global commerce an even larger part of future American success.4 By tapping into these lucrative markets, the United States can retake its lost share of these expanding economies, which means more wealth and prosperity for the middle class and the U.S. economy." [3rdWay]

But is that, in fact, true?

The US Trade Representatives Opinion

The US Trade representatives certainly believe so. They wrote a letter to Nancy Pelosi during the debate on the Trade Authority agreement to try to persuade her to vote for it:

https://ustr.gov/sites/default/files/uploads/agreements/morocco/pdfs/TPP%20Congressional%20Notification.pdf

But are their assertions true?

Economic Policy Institute disagrees

They claim:

"The Trans-Pacific Partnership Could Be Much Worse than the Over-Hyped Korea Deal" [EPI opinion]

They claim:

  • "Claims that trade deals increase exports and create jobs are based on flawed trade models, and on distorted and one-sided interpretations of the findings of those models."
  • "The flaws in trade models are exemplified in the U.S. International Trade Commission’s estimate that KORUS would increase U.S. goods exports by roughly $10 billion to $11 billion after fully phased in. This estimate focused solely on the impact of tariff cuts on exports, leaving out the effect of changes in foreign direct investment, outsourcing, and all of the other outcomes from trade deals provisions that impact trade flows."
  • They cite the example of our recent Korean Treaty. Which had opposite effects from the ones advertised.

  • "The USITC also estimated that imports from Korea would increase by about $6 billion to $7 billion, and that the U.S. trade balance with South Korea would improve by about $4 billion to $5 billion. In the year after KORUS took effect, U.S. domestic exports to South Korea actually fell $3.5 billion. Projections for 2013 suggest no reversal of this trend."
  • "The tendency to distort trade model results was evident in the Obama administration’s insistence that increasing exports under KORUS would support 70,000 U.S. jobs. The administration neglected to consider jobs lost from the increasing imports and a growing bilateral trade deficit. In the year after KORUS took effect, the U.S. trade deficit with South Korea increased by $5.8 billion, costing more than 40,000 U.S. jobs. Most of the 40,000 jobs lost were good jobs in manufacturing."
  • "There was also a big gap between predictions and outcomes for the North American Free Trade Agreement enacted in 1994: NAFTA was supposed to create 200,000 new jobs through increased exports to Mexico but, by 2010, growing trade deficits with Mexico had eliminated 682,900 U.S. jobs, with job losses in every U.S. state and congressional district."
  • They recommend:

  • Given the big gaps between promised and actual outcomes, the United States should stop negotiating trade deals and fix the ones we have."
  • "Meanwhile, officials should insist that the U.S. International Trade Commission develop trade and investment models that more accurately estimate the effects of FTAs on trade, foreign investment, employment, wages, and the distribution of income, and that they fairly consider the effects of FTAs on both exports and imports, and their impacts on the economy. It is time to shatter once and for all the illusion that FTAs are only about exports."

So who is right? The Economic Policy Institute? or the Third Way and our Trade Representatives?

EPI opinion

I have grave doubts, and am keeping an open mind. But I have grave doubts that all the hype is more than hype. One thing is certain eternal trade deficits will eventually lead to collapse of all these agreements. So something has to be done

Tables

Sources and Further Reading

Losing Ground in Asia: Why the U.S. Export Market Share Has Plummeted"
http://www.thirdway.org/report/losing-ground-in-asia-why-the-us-export-market-share-has-plummeted
Previous Report: [http://www.thirdway.org/report/least-in-the-east]
TPP:
http://holtesthoughts.blogspot.com/2015/05/why-opposition-to-trans-pacific.html
https://ustr.gov/sites/default/files/uploads/agreements/morocco/pdfs/TPP%20Congressional%20Notification.pdf
EPI: http://www.epi.org/publication/trade-pacts-korus-trans-pacific-partnership/

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