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Will US free trade agreements create jobs?

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Highlights
  • The new free trade pacts address a wide range of products and industries.
  • Assessments of the free trade agreement at this early stage run the gamut.
  • U.S. food exporters and American agriculture will likely gain from the deals.

When President Barack Obama signed into law new U.S. free trade agreements with South Korea, Colombia and Panama on Oct. 21, it marked the most significant change to U.S. trade policy since the 1994 North American Free Trade Agreement, or NAFTA.

The deals address a wide range of products and industries, but assessments of their impact at this early stage run the gamut, with proponents heralding the agreements as an economic boon for a struggling U.S. economy while detractors worry they may actually cost the U.S. jobs.

What will the trade deals mean to your bottom line?

Will we have cheaper goods?

Generally speaking, "all free trade agreements offer an opportunity for lower prices on the goods sold by the countries in an agreement," says Kathleen Brush, a global business consultant based in Seattle who teaches courses on international business.

But, as Brush points out, the devil is often in the details. South Korea has the best-known consumer products of all three trade partners, but American consumers shouldn't expect across-the-board price drops.

For instance, they may see price drops on electronic goods made by LG and Samsung, but they shouldn't expect similar deals on Korean cars because Korean carmaker Hyundai already builds many of its vehicles in the U.S.

But while Brush sees specific price drops as a distinct possibility, others disagree, arguing that the free trade agreements with Colombia and Panama, respectively, are really about opening up those markets to American goods because their exports already have relatively low tariffs when shipped to the U.S. market.

"There will be almost no noticeable impact on American consumers," says John Prince, managing director of Americas Market Intelligence, an advisory group in Coral Gables, Fla., specializing in market research in Latin America. "The agreements are lopsided in that they much more significantly drop the tariffs of U.S. products entering these countries than vice versa. The impact on consumers will be felt in Colombia and Panama, not in the U.S."

Is there an overall economic impact?

Most experts agree that free trade agreements with South Korea, Panama and Colombia, respectively, will have a positive effect on the overall U.S. economy in terms of gross domestic product.

"Manufacturing and services are the obvious sectors that will be directly impacted," says James Meyer, a partner at Harper Meyer, a law firm based in Miami that specializes in international trade.

Prince says U.S. food exporters will likely gain from the deals, which means a boon for American agriculture. He also sees a secondary effect that may help U.S. suppliers of construction and farming equipment such as Caterpillar and John Deere. And finally, Prince says U.S. technology firms should expect to benefit from increased protection of their intellectual property, which should help them enter new markets with these newfound safeguards.

According to U.S. Census Bureau data, U.S. exports to South Korea total $38.8 billion annually; imports total $48.9 billion. While those may seem like large numbers, remember that any gains in trade will be weighed against total U.S. GDP, which the CIA World Fact Book estimated at $14.66 trillion in 2010.

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