Facts are stubborn things when it comes to trade
The Hill | 7 May 2010
Facts are stubborn things when it comes to Trade
By Todd Tucker
We’re all entitled to our own opinion about NAFTA-style trade pacts, but we’re not entitled to our own facts. In this vein, it’s hard to know whether the "data" presented in National Association of Manufacturers (NAM) official Frank Vargo’s op-ed in The Hill ("Free trade pacts have been good for U.S.", 4/19) is intentionally misleading or just sloppy. Vargo’s representations will be familiar to Hill denizens: In recent weeks the Chamber of Commerce and other defenders of the trade status quo have been blasting the same "data" far and wide.
Perhaps the most peculiar claim is that the U.S. has trade surpluses with its "Free Trade Agreement" (FTA) partners, when in fact the data show we have a deficit. Vargo wrote, "over the past two years FTAs have resulted in a U.S. manufactured goods surplus of nearly $50 billion." The way Vargo comes up with this "surplus" is to include billions of "re-exports" – those are foreign products passing through U.S. ports, but were not made by American workers. When the correct measure is used (the difference between "domestic exports" and "imports for consumption"), the opposite result is produced: the trade balance in non-oil, manufactured goods with U.S. FTA partners over 2008-2009 was a deficit of $97 billion.
Vargo also argues that NAFTA was a U.S. job-creating success, noting that, "for almost a decade after NAFTA, the United States gained nearly a half-million manufacturing jobs." That statistic actually highlights NAFTA’s damage. As the population grows, the number of manufacturing jobs should grow, all else being equal. But in the period after NAFTA and onto when Congress voted to admit China to the World Trade Organization (WTO), manufacturing jobs as a share of total U.S. nonfarm jobs steadily shrank. A cursory examination of the Bureau of Labor Statistics data shows that manufacturing employment share began falling even in NAFTA’s early years, as the trade deficit with Mexico and Canada exploded. This was exactly the opposite of what NAFTA’s proponents, such as the NAM, predicted. Then, starting in the late 1990s, even the total (not just relative) number of manufacturing jobs started to precipitously decline. Only in the twisted world of Beltway lobbyists is the net loss of 5 million American manufacturing jobs during the NAFTA-WTO era a vindication for a failed policy.
Vargo claims the trade deficit is all oil imports. He writes: "The manufactured goods deficit with NAFTA barely budged after 2001 while nearly doubling with the rest of the world. Jobs displaced by imports from NAFTA were offset by the jobs gained from exports. True, the overall deficit with NAFTA has soared since 2001 – again, the result of oil imports, not manufactured goods. Aside from energy imports, the deficit is virtually unchanged."
Where to begin? The inflation-adjusted trade deficit in non-oil manufactured goods (NOMG) with NAFTA countries shows an increase of 16 percent from 2001-07, before global trade collapsed. And, looking at the longer period, the NOMG deficit with NAFTA countries went from a $5.8 billion surplus in 1993 to a whopping $45 billion deficit in 2009. Meanwhile, it is hard to understand how NAM concludes that U.S. jobs lost to imports were offset by those gained from exports, when the United States suffered a NOMG deficit that peaked at $663 billion during the period in question, accounting for millions of lost U.S. job opportunities.
Vargo also praises the Peru FTA, saying "The U.S. has moved into a surplus with Peru." Actually, the U.S. already had a NOMG surplus with Peru before the pact’s 2009 start date. A year later, the NOMG balance (or net export level) is only $0.000498 trillion. To put this in perspective, Obama’s export drive will require $1 trillion in increased exports over the next five years. At the rate of the Peru FTA, the U.S. could sign FTAs with all 192 members of the United Nations, and still only be a tenth of the way to the goal.
Unfortunately, Vargo is not alone in misrepresenting the U.S. experience with FTAs. Widely cited "data" published by the Chamber of Commerce also is used to make outlandish claims about trade gains. A review of the relevant Chamber study shows that the data touted as evidence of exciting export gains is not adjusted for inflation. The Chamber study also includes other basic arithmetic errors. When the Chamber’s own method is cleaned up, for instance by inflation adjusting, it shows an export penalty from FTAs. In other words, it shows that export growth rates to U.S. FTA partners were slower than with non-FTA trade partners.
Finally, Vargo makes factually incorrect claims about the Trade Reform Accountability Development and Employment (TRADE) Act to argue it would undermine President Obama’s export initiative. Given the TRADE Act is a vehicle to rebuild consensus for trade expansion and is supported by a majority of House Democrats including twelve chairs, fifty-five sub-committee chairs and large blocs of New Democrats and Blue Dogs, one might expect NAM to seize on the legislation as a means to obtain new trade agreements that can expand exports. Alas, it appears that the NAM data errors also extend to vote counting.
Todd Tucker is research director with Public Citizen’s Global Trade Watch division, and co-author of a forthcoming study "Lies, Damn Lies and Export Statistics: How Corporate Lobbyists Distort Record of Flawed Trade Deals.
