Free-trade agreements have become a flashpoint in this year’s contentious presidential race as voters from the right and left have decried them. Republican presidential nominee Donald Trump had pledged to eliminate the North American Free Trade Agreement while Democrat Hillary Clinton has backed out of supporting the proposed Trans-Pacific Partnership, a massive deal that would bring a dozen Pacific Rim countries, including the United States, under one trade umbrella.
But what is the real impact of these free-trade deals?
The Congressional Budget Office has issued a report weighing in on the effects of these preferential trade agreements, and the verdict is far from glowing praise.
These pacts, which eliminate import tariffs, establish standardized commercial rules and bolster legal protections for foreign companies, have not decimated American business but they have been no boon either. Free-trade deals “have had relatively small positive effects” on the U.S. economy, according to the report from the CBO, which responsible for offering economic analyses to lawmakers. The benefits have been nominal, the report goes on to say, because the trade deals the U.S. has signed have tended to be with countries with smaller economies and trade barriers that were low to begin with.
These deals have been extremely beneficial to multinational corporations and their executives and shareholders because they open foreign markets. They also get better protections for their patents, copyrights and overseas assets, like factories. But they’ve had outsize adverse impact on U.S. workers in many industries — from Ohio glassmakers to Gulf Coast shrimpers — as companies close operations in the U.S. and set up shop in countries that can export more cheaply to the U.S. under these preferential trade deals.
The U.S. currently has trade pacts with 20 countries, half of them in Latin America where labor is cheap and governments are eager to attract U.S. investment and to gain access to the world’s largest economy. In addition to the Trans-Pacific Partnership, the U.S. is also in talks to establish the Transatlantic Trade and Investment Partnership with the European Union, a deal that’s garnered strong public opposition on both sides of the Atlantic.
The CBO report doesn’t say trade pacts are outright bad, however. It points out economic and historical precedents that show how easier flow of goods and services among countries benefits nations in the long run. In particular, the report says, it benefits export-oriented companies, which gain better access to customers abroad. And lower prices that come from global trade also help low-income Americans, who spend larger portions of their incomes on imported goods. This increased purchasing power can’t be ignored, though the CBO concedes that the benefit has been “slight,” so it’s unclear if lower prices for imports outweighs the erosion of wages and job losses.
“In the United States, trade-displaced workers tend to work in industries subject to more competition from imports (such as the textile industry), relatively less productive businesses, or occupations involving easily automated or routine tasks (such as data entry or customer service),” the CBO noted.
The report says it’s difficult to quantify how many Americans' jobs have been lost because of these agreements — increased automation and productivity have also played important roles in corporate downsizing. Even if, as president, Trump succeeded in convincing American companies to open factories in the U.S. by imposing steep tariffs on imports from Mexico and China, these highly automated factories would supply fewer jobs than the ones that existed before. While U.S. manufacturing activity has increased 20 percent since the peak of the Great Recession in 2009, manufacturing jobs have risen only 5 percent in the same period of time, according to an analysis of official data earlier this year by Fivethirtyeight.com.
The debate over free-trade deals will continue until the Nov. 8 election and beyond. And while the devastating effects of NAFTA and TPP may be overstated and a bit oversimplified, if the CBO is right, then we know this: Proponents of free-trade pacts — from the government’s own U.S. Trade Representative to pro-business groups like the U.S. Chamber of Commerce — have greatly exaggerated their benefits.
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