Will US free trade agreements create jobs?

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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.

Will it create jobs?

Perhaps the most controversial element of the free trade agreements with South Korea, Panama and Colombia, respectively, has been the impact on jobs in the U.S. While the figures varied in the wake of the announcement, USA Today reported that the deals’ proponents estimated the deals would create or save as many as 380,000 U.S. jobs. At the same time, skeptics worried that the U.S. could lose as many as 214,000 jobs. So how could the same deals produce such wildly different estimates?

The variation probably depends on where you sit in the American economy. If your business benefits from having high tariffs on imports from Panama, South Korea and Colombia, the deals are likely to be alarming. But Meyer says, “Companies exporting goods and services abroad will almost certainly see upticks as well as the sectors supporting those companies with other goods and services.”

Looking at the macro picture, Eugene Laney Jr., vice president of international trade affairs and compliance at DHL Express U.S. in Washington, D.C., says “these agreements mean significant job growth.”

Citing data from the International Trade Commission, Laney says the U.S. could see a net gain of 250,000 jobs, though that figure can change based on the economic momentum of our new trading partners.

“South Korea, Colombia and Panama are growing faster than the U.S., which means greater and freer access to these markets results in more sales and job growth for U.S. businesses,” Laney says. “These free trade agreements are a step in the right direction in improving the current U.S. economy.”

While Brush agrees with that overall assessment, her figures aren’t so optimistic.

“The Department of Commerce estimates that for every $1 billion in product exports, 6,000 jobs are created, and for services, the number is 4,500 jobs,” Brush says. “If the agreements generate the expected $10 billion to $15 billion, this would create 45,000 to 90,000 jobs.”

As for the argument that the free trade agreements could actually cost U.S. jobs, Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, a nonprofit, nonpartisan think tank in Washington, D.C., worries the deals will only lead to greater trade deficits with our trading partners, which will in turn hurt U.S. jobs. Even if the deals don’t increase trade deficits, Scott doesn’t expect the agreements to be a boost to U.S. jobs.

“At best, (proponents) claim that these deals will support a few tens or hundreds of thousands of jobs that could be created over the next decade,” Scott says. “But the U.S. has a jobs crisis now. A decade from now, if employment finally recovers, these deals could simply end up moving jobs from one industry to another. Free trade agreements are no answer to the jobs crisis, even in the best case.”