This article was last updated on April 16, 2022
International trade is a key part of the global economy, however, trade agreements have had a significant impact on American workers and the overall American economy. As you will see in this posting, despite the promises of Washington, international trade agreements have left American workers far worse off and have made Corporate America far wealthier than would have been the case had the agreements not been negotiated and signed.
Let's open with a quote from the Office of the United States Trade Representative:
"Trade Agreements can create opportunities for Americans and help to grow the U.S. economy."
As you will see in this posting, there is no doubt that trade agreements can create opportunities for some Americans.
The United States has 14 free trade agreements with 20 nations, most of which are built on the foundation of the World Trade Organization Agreement. Here, in chronological order, are the key trade agreements from the late 1980s and 1990s that had a significant impact on the American economy:
Canada-United States Free Trade Agreement – 1989
North American Free Trade Agreement – 1994
United States – China Trade Agreement – 1999
The 1999 trade deal with China was to facilitate China's entry into the World Trade Organization. Even though the United States already had a massive trade deficit with China of approximately $68 billion in 1999, here's what Bill Clinton had to say about establishing Permanent Normal Trade Relations with China back in 2000:
It's particularly ironic that Alan Greenspan, creator of the tech bubble, is accompanying the former president.
Here is the partial text of a speech that President Clinton gave on March 9, 2000 about the China trade bill:
"The W.T.O. agreement will move China in the right direction. It will advance the goals America has worked for in China for the past three decades.
And of course, it will advance our own economic interests. Economically, this agreement is the equivalent of a one-way street. It requires China to open its markets — with a fifth of the world's population, potentially the biggest markets in the world — to both our products and services in unprecedented new ways. All we do is to agree to maintain the present access which China enjoys.
Chinese tariffs, from telecommunications products to automobiles to agriculture, will fall by half or more over just five years.
For the first time, our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China, sell through the Chinese government, or transfer valuable technology — for the first time. We'll be able to export products without exporting jobs.
Meanwhile, we'll get valuable new safeguards against any surges of imports from China. We're already preparing for the largest enforcement effort ever given for a trade agreement.
If Congress passes P.N.T.R., we reap these rewards. If Congress rejects it, our competitors reap these rewards. Again, we must understand the consequences of saying no. If we don't sell our products to China, someone else will step into the breach, and we'll spend the next 20 years wondering why in the wide world we handed over the benefits we negotiated to other people." (my bold)
So, let's see how these three "job creating" trade agreements have worked out. Here is a chart from FRED showing the balance on current account:
The current account is defined as the difference between the savings of a nation and its investment and forms an important indicator of the health of the economy. Investopedia defines it as "the sum of the balance of trade (goods and services exports minus imports), net income and net current transfers". While a current account deficit doesn't necessarily mean that an economy is weak, it means that the economy (in this case, the U.S. economy) is a net debtor to the rest of the world. It is investing more than it is saving and is using resources from other economies to meet its domestic investment and consumption needs. As you can see from the chart above, the United States has had a negative balance on its current account since the early 1980s and the situation worsened in two stages; first in the mid-1990s when NAFTA took effect and manufacturing fled to low-cost Mexico and second in the early 2000s when China began to be a global economic force thanks to its brand spanking new membership in the WTO.
What impact has this had on Americans? Let's focus on the period since the beginning of 2000 and look at what has happened to employment in production occupations:
Back in 2000, around 11.5 million Americans were employed in production occupations. Currently, only 8.47 million Americans are employed in production occupations, down just over 3 million or 26 percent.
Now, let's look at what has happened to two key economic statistics; corporate profits (ex-financial) and average hourly earnings of production and non-supervisory employees both indexed to the year 2000:
Over the sixteen year period, corporate profits have risen by 161 percent while average hourly earnings have risen by only 55 percent.
Here is the same data displayed showing the percentage change on a year-over-year basis:
You have to look pretty carefully to see the blue line that lies along the axis, showing us that average hourly earnings have barely budged on an annual basis, particularly when compared to corporate profits which, for the most part save immediately before and during the Great Recession and in recent quarters, have grown at levels that are far higher than wages.
Let's close this posting by looking at the employment situation in China since 2004:
Since 2004, the percentage of Chinese workers employed in the nation's industrial sector has grown from 22.5 percent to a high of 30.3 percent in 2012.
Here's what has happened to wages in China's manufacturing sector since 2006:
Unlike their American counterparts, workers in China's manufacturing sector saw their wages nearly triple between 2006 and 2014 and if we go back further to the mid-1990s just before the WTO agreement was signed, China's manufacturing sector has experienced wage growth of 1000 percent as shown on this graphic:
A history of trade agreements made by a succession of governments in Washington have proven negatively impact American workers, particularly in the manufacturing sector. Corporate America has been the biggest beneficiary; lower cost offshore production has proven to be "the profit pot of gold" at the end of the trade rainbow. In fact, the situation for American workers is so dire that the United States Department of Labor Employment and Training Administration established a Trade Adjustment Assistance program 40 years ago for American workers who have been displaced by foreign workers. The TAA program was reauthorized for another six years on June 29, 2015 by the current president; the extension was buried in H.R. 1295 – Trade Preferences Extension Act of 2015. The Congressional Budget Office estimates that the extension will cost $1.8 billion over the period between 2015 and 2020. This begs the question; if international trade deals are such a great opportunity for American workers and the U.S. economy, why is the Trade Adjustment Assistance program necessary? This is a particularly pertinent question given the ongoing negotiations over the massive Trans-Pacific Partnership and is an issue that should be receiving far more attention from the remaining crop of presidential candidates.
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