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July 27, 2010

From Building Cars to Packing Meat

When the Bush administration tried to sell the Panama and Colombia FTAs, it argued that the FTAs would simply make our trade relationship a two-way street with these countries since they already enjoy greater access to the U.S. market through trade preference programs.  (And we have still seen rising deficits with the CAFTA countries even though much of their exports fell under preference programs before CAFTA was implemented). South Korea, though, does not enjoy any preferential market access, so if the FTA were to be implemented as-is and the trade barriers come down, we will most likely see a tremendous surge of imports.

To get a hint of the possible jobs impact of the Korea FTA, we’ll dive more deeply into that U.S. International Trade Commission (USITC) study that we mentioned a few weeks ago. 

The USITC study indicates that jobs will likely be lost in many high-wage industries, including auto manufacturing and electronics manufacturing. The table below displays the USITC’s estimates of impact of the Korea FTA upon employment and the trade deficit in a few sectors of the U.S. economy, available in Tables 2.3 and 2.4 of the report. The USITC gives employment changes in percent terms rather than in numbers of jobs, so to make the loss more tangible we’ve computed the job loss numbers based on the USITC percent change estimates and sector employment data from the Bureau of Labor Statistics

  USITC Korea FTA estimates

According to the USITC study, the auto manufacturing industry may lose about 1,750 workers due to the Korea FTA.*  The average hourly earnings of workers in the auto industry was $23.61 in 2008, which was 9.2 percent greater than the average hourly earnings of all workers employed in the private sector ($21.62). The average hourly earnings of workers in the electronic equipment manufacturing industry, projected to lose about 5,000 workers, was $30.38 in 2008, which was 40.5 percent greater than the average hourly earnings of all workers employed in the private sector.

As the table shows, large rises in the trade deficit in these sectors are driving the employment loss, totaling up to almost $1.7 billion for motor vehicles and parts, other transportation equipment, and electronic equipment alone. Interestingly, the USITC predicted that there would be an absolute decline in the total value of exports in some manufacturing sectors, not just a worsening of the balance. For example, total U.S. exports of electronic equipment are expected to decline by up to $381 million due to the implementation of the Korea FTA (see Table 2.3 in the study).

The structure of the USITC model does not permit the total number of employed workers to vary, so the workers who lost their jobs in these manufacturing sectors are assumed to be employed in other sectors.  The USITC projected that the workers shed by these high-paying industries would be absorbed by other industries, principally low-paying industries such as meat processing that are expected to export more goods under the Korea FTA. Employment in the bovine meat production industry was projected to rise by 0.7 to 1.8 percent, the greatest percent increase projected for any industry except for the industry of actually raising cattle, sheep, goats, and horses, whose employment was also projected to rise by 0.7 to 1.8 percent.

Workers in the meat production industry are very poorly paid. Their average hourly earnings are only $13.69, which is 36.7 percent less than the average hourly earnings of all workers employed in the private sector. Working in meat processing is also quite dangerous: the Government Accountability Office [http://www.gao.gov/products/GAO-05-96] noted that, “injury and illness rates among meat and poultry plants remain among the highest of any industry.”

The unfavorable employment effects of the Korea FTA projected by the USITC model can be thought of as the minimum level of employment displacement and trade deficit increase that the Korea FTA might bring about, given that past USITC projections have been overly optimistic. For example, a 1999 USITC study using roughly the same model estimated that China’s tariff offer for WTO ascension would only increase the U.S. trade deficit with China by one billion dollars. In reality, the trade deficit with China skyrocketed by $167 billion between 2001 and 2008. Although China’s WTO ascension alone (and the favorable trade treatment that came with it) likely did not cause the huge rise in the trade deficit with China, it almost certainly contributed more than one billion dollars to the rise in the deficit.

Rep. Sander Levin and other members of Congress have proposed a detailed set of measures to reduce the nontariff barriers that U.S. vehicles face in the Korean market.  These measures, if included in a reformed Korea FTA, could ensure that U.S. auto workers would benefit from the trade pact rather than being harmed.

The Korea FTA, as currently written, will further erode the American middle class by eliminating jobs in high-paying manufacturing sectors.  The Obama administration must fix the Korea FTA to ensure that it benefits workers, in addition to fixing the financial services deregulation and investor-state enforcement provisions.

* The USITC estimated “low” and “high” impacts of the Korea FTA. The figures in this post are from the “low” estimates.

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Comments

bucket trucks

international trade has helped bring all countries to the table with something to offer. Whether it be building vehicles and trucks to growing and shipping grains and rice.

Japan Used Car Sale

Car dealers and small rental-car companies want to be able to sell, lend or rent cars that have been recalled for a variety of defects before they're fixed. And they're working behind the scenes on Capitol Hill to make sure they can.

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