Politicians in Washington love to talk about creating jobs, especially in economically uncertain times such as these. Unfortunately the record shows that they are not particularly good at creating jobs and that, in fact, their efforts to do so can cause more harm than good. It is perhaps ironic, therefore, that there is currently a great deal of hesitation in Washington when it comes approving free trade agreements (FTAs) with other countries, which is quite possibly the most effective action a government can take to create jobs.
Currently, there are three FTAs sitting on the tables of the decision-makers in Washington: agreements with South Korea, Columbia, and Panama, which wait only a few words and signatures from the President and Congress for approval. The moment that these FTAs are approved, trade barriers between America and the other respective nations will begin to be dismantled, opening up those foreign markets for American exports, giving American consumers better and cheaper access to foreign goods, helping keep interest rates low, and generally improving the economic situation for all concerned. If Congress and the President were really serious about creating American jobs and improving the American economy, they would stop playing politics and approve these three agreements without delay.
The idea behind free trade is very simple: legal and regulatory barriers on international trade, such as tariffs, quotas, import and export duties, and all other such things should be reduced to their lowest possible level, and ideally abolished altogether. This seems like such an obviously desirable state of affairs that it's a wonder why it is so controversial. But despite its simplicity, free trade has been an enormously controversial subject since the early days of the republic, when Alexander Hamilton and Thomas Jefferson argued over its imagined benefits and drawbacks. The debate has pretty much been ongoing since then and there is no reason to believe it will end anytime soon.
Supporters of free trade declare that removing trade barriers between the United States and other countries expands economic activity, opens new markets to American products, creates jobs, lowers prices, and (as a bonus) improves the prospects for peace in the world. Opponents of free trade say that it costs America jobs by increasing America's trade deficit and allowing foreign competitors to undercut American manufacturers by dumping cheap foreign goods in the American market. While both sides selectively quote data and statistics to support their argument, an objective view of the question shows that the supporters of free trade decisively win the argument. When considered by the unbiased mind, there can be no doubt that free trade is both good for the United States and good for the world as a whole.
Last year, the United States Chamber of Commerce released a detailed study of the impact FTAs have had on the American economy in general and the American jobs picture in particular. Although there are currently seventeen FTAs in operation, the study focused only on fourteen, as it was decided that the three newest agreements had been enacted too recently for their full impact to be appreciated. The report found that the fourteen FTAs generated just over $300 billion in American economic activity and supported more than five million American jobs. Far from costing American jobs, free trade clearly results in a net gain of American jobs. According to Daniel Griswold, trade expert at the Cato Institute, the loss of low-paying blue collar jobs from FTAs are more than compensated for by the simultaneous creation of higher-paying white collar jobs.
Another claim that detractors of free trade like to make is that free trade increases America's trade deficit with the rest of the world. The facts state otherwise. Indeed, if we view the 17 nations with which America currently enjoys free trade status as a single bloc, we would have a significant trade surplus with them. By just about any measure, we gain much more than we lose by free trade.
Of the three FTAs on the table in Washington at the moment, the agreement with South Korea is clearly the most important. South Korea already has the 15th largest GDP in the world and, as one of the so-called "Asian Tigers", has emerged as one of the most important industrialized economies on the planet. Even without free trade status, South Korea is the 7th largest trading partner of the United States and exports to South Korea already support more than 200,000 American jobs. However, up to this point they have enjoyed far greater access to our market than we have enjoyed to theirs. The proposed FTA between South Korea and the United States would eliminate 95% of trade barriers within five years, vastly increasing access to the South Korea market for American exporters.
The United States currently has a trade deficit with South Korea to the tune of about $11 billion a year; approval of the FTA would cut this trade deficit by between $3 billion and $4 billion a year. More to the point, South Korea currently levies a tariff on American agricultural products that is greater than 50%; approval of the FTA would reduce this to nearly nothing over the course of a few years. South Korea will gain easier access to American products, and American businesses will increase their profits.
The FTA would also allow greater access for South Korean investment in the United States, which would lead to an expansion of South Korean-owned production facilities in our country that would create many thousands of well-paying American jobs. Consider the South Korea technology giant Samsung, the second largest chipmaker in the world. In my own town of Austin, Texas, a major chip manufacturing facility built by Samsung employs around two thousand highly-skilled and well-paid American workers and is currently in the process of a major expansion. If the FTA between South Korea and the United States is approved, how many other such facilities will be created across the United States?
The FTA between South Korea and the United States would be the biggest free trade agreement for the United States since the North American Free Trade Agreement (NAFTA) came into force in 1993. Already, South Korea has signed a free trade agreement with the European Union, and its trade ties with its Japanese and Chinese neighbors are also increasing. If we don't act quickly, the United States risks being cut out of the valuable South Korean market altogether.
Although the South Korean agreement is clearly the most important of the three FTAs currently being debated, the proposed FTAs with Columbia and Panama are nothing to sneeze at, either. Columbia is already the third biggest market for American exports in Latin America, with American exports to Columbia totaling $12 billion in 2010. Approval of the FTA with Columbia would increase this by more than a billion dollars, adding large numbers of jobs in both the agricultural and manufacturing sectors of the American economy, with the export of chemical products and construction equipment deriving particular benefit.
While Panama may be a small economy compared with the other two countries, it is a country whose economy is growing rapidly and which represents an expanding market for American products, particularly in the service sector. Currently, American industrial goods face a tariff of 7% and agricultural products face a tariff of 15%. The FTA with Panama would abolish those tariffs, greatly increasing the profitability of American exports and thereby helping to create and protect American jobs.
The expansion of free trade needs to be one of the central planks of the foreign and economic policies of the United States. It generates economic activity, creates jobs, eases the fiscal crisis, and promotes good relations with other countries. For all these reasons, Congress and the President should quickly approve all three of the free trade agreements that are currently on the table.