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August 05, 2011

Incorrect Numbers Continue to Pop Up in Trade Reporting: Trade-ifact III

The announcement late Wednesday of a nebulous "agreement" in the Senate on a legislative "path forward" for the Korea, Colombia, and Panama trade deals (or FTAs), has renewed the trade chatter in the newswires. But we're still seeing a lot of questionable claims about the FTAs in these stories, so it's time for another edition of Trade-ifact.

For the third installment , we've organized the stories by theme.

 

Faulty Export Numbers

Misquotes of the official U.S. International Trade Commission (USITC) studies of the three trade deals continue to pop up in news articles, either directly or through quotes of FTA proponents.

As we have said before, FTA supporters only look at the USITC's bilateral export numbers and do not consider the USITC's projections on the change in overall U.S. imports. When the global changes in exports and imports are taken into account, the USITC studies reveal that net exports would decline by $482 million under the Korea and Colombia trade deals (instead of the “bilateral exports only” of $11-12 billion). The USITC made no overall trade estimate for Panama.) 

There were several stories that misreported this $12 billion export number as fact, including:

- Doug Palmer (Reuters), US Congress leaders agree path to pass trade deals (8/3/2011)

- Angus Loten (Wall Street Journal),  Trade Pacts Urged for Export Growth (7/27/2011)

There were several additional stories that reported the incorrect number as the opinion of an interviewee or the Obama administration, but failed to note its misleading origin. These included:

- Mark Drajem (Bloomberg), U.S. Senate Leaders End Impasse on Three Free-Trade Deals, Workers’ Aid (8/4/2011)

- Jim Abrams (AP),  Senate deal on taking up worker, trade bills (8/4/2011)

- Suzy Khimm (Washington Post),  How can Washington help create jobs? (8/3/2011)

- Doug Palmer (Reuters), U.S. business hopes debt deal clears way for trade (8/1/2011)

Doug Palmer’s stories also round up the administration's export claims from $12 billion to $13 billion.

 

Faulty Jobs Numbers

News stories are also continuing to report that the trade deals will create or support 70,000 jobs. This has got to be one of the most popular outright errors in the history of trade debates. As we show here, it is derived from applying an incorrect methodology to an incorrect number (bilateral export projection). But even if one accepts the administration’s methodological choices, applying that method to the correct number (net exports) would reveal a decline in jobs.

Doug Palmer's US Congress leaders agree path to pass trade deals (8/3/2011) misreported this number as fact.

There were several additional stories that reported the incorrect number as the opinion of an interviewee, but failed to note its misleading origin. These included:

- Suzy Khimm (Washington Post),  How can Washington help create jobs? (8/3/2011)

- AFP (no byline), SKorea deal unlikely before September: US lawmaker (7/27/2011)

- Doug Palmer (Reuters), U.S. business hopes debt deal clears way for trade (8/1/2011)

Palmer also cites the National Association of Manufacturers, which claims, "American workers would have earned $12 billion more in wages and benefits over the past several years had the pacts not been delayed." The National Association of Manufacturers gets to this number simply by multiplying the faulty $13 billion export number by the share of manufacturers' revenue that go into labor compensation (27 percent), and then multiplying that number by the number of years that have passed since President Bush signed the FTAs. So, in essence, it is simply a repackaging of the same wrong numbers. Josh Bivens at the Economic Policy Institute has concluded that, far from boosting workers' wages, unbalanced trade costs the average working family $2,000 each year.

- Angus Loten (Wall Street Journal), Trade Pacts Urged for Export Growth (7/27/2011)

Loten writes that the trade pacts are expected to create “more than 250,000 jobs, according to the U.S. International Trade Commission.” Loten then goes on to quote the 70,000 number in the same story.

The USITC study does not find any job gain associated with the FTAs, let alone 250,000. This number seems to stem from a claim that Rep. Kevin Brady (R-Texas) made in March, which is based on three factual errors. Once these errors are corrected for, the FTAs would actually cost jobs, according to this method. We explored these errors in detail here.

Nonspecific Jobs Claims Go Unchallenged

In the case of the recent debate over the debt ceiling, the media at least presented claims of both sides of the debate, even though they did not attempt to suss out the truth in the opposing claims. For example, one side had basic macroeconomic accounting on its side (cutting government spending will lower GDP), while the other had "confidence fairies", in Paul Krugman's memorable phrase. Both sides were presented as equally legitimate in most reporting.

With the debate over the NAFTA-style trade deals, though, it’s even worse: the pro-FTA side’s baseless claims of generic job creation are cited, while the other side is not cited, or cited only as having sentiments rather than facts.

Examples of unrebutted citation of generic FTA-job gain claims include:

- Doug Palmer (Reuters), US Congress leaders agree path to pass trade deals (8/3/2011)

- Vicki Needham & Bernie Becker (The Hill), White House, Senate Dems say no agreement yet on moving trade deals (7/27/2011)

- Scott Wong (Politico), Breakthrough on trade agreements (8/4/2011)

- Tom Barkley (Dow Jones), Senate Leaders Seal Bipartisan Plan For Vote On Trade Pacts, Job Training (8/3/2011)

- Tom Barkley (Dow Jones), USTR: Still Working On Sequencing Of Votes On Trade Pacts, Job Training (8/4/2011)

- Felicia Sonmez (Washington Post), Senate leaders reach agreement on Colombia, South Korea, Panama trade deals (8/4/2011)

Vicki Needham of The Hill writes in Senate leaders reach deal paving way for passage of trade deals (8/3/11) that President Obama and U.S. Trade Representative Ron Kirk claim jobs will be gained from the trade pacts, but the strongest counter from the other side that she musters is Rep. Nancy Pelosi saying those claims were "debatable". Jennifer Rubin at the Washington Post's Right Turn blog quips that "It’s debatable? By whom — the AFL-CIO executive board?" Actually, the government's own independent projections of the trade deals — and historical experience — show that the projections of increased deficits and lost jobs are not just debatable, they constitute the historical record.

Another example: after quoting the Obama administration's numbers on the jobs that will supposedly be supported by the trade deals, Angus Loten of the Wall Street Journal writes in Trade Pacts Urged for Export Growth (7/27/2011) that "Yet since the recession, Americans have grown more hostile to free trade agreements, possibly clouding the prospects for congressional approval. In October, the latest Wall Street Journal/NBC News poll found that 53% of 1,000 Americans surveyed said free-trade pacts have hurt the U.S., up from 46% in a similar poll three years ago and 32% in 1999." Citing the polls thankfully brings the American people into the trade debate, but from this story, one would not know that they have fact as well as sentiment on their side. In reality, while there is a lot of support for the public's view that trade deals cost jobs, there is not much support for the view that they create jobs on net.

 

Trade Adjustment Assistance Benefits Will Be Cut Under Proposed Deal

Many news stories continue to characterize the proposed Trade Adjustment Assistance (TAA) legislation as an "extension" or "renewal" of TAA, when the deal struck between the White House and congressional Republican leadership will actually result in the downsizing of the program relative to its 2009 and even 2002 levels. Under the new TAA plan, workers displaced by trade could receive a maximum of 130 weeks of income support while undergoing retraining, while currently workers can receive up to 153 weeks of income support. It also would restrict income support eligibility for workers who are not in retraining programs, cutting the types of waivers for income support from six to three. These details, or at least the fact that the program is being cut, would be of interest to readers with diverse opinions on the merits of FTAs and of government spending.

Examples of reporting on the TAA proposal that lacked this essential context included:

- Jim Abrams (AP), Senate deal on taking up worker, trade bills (8/4/2011)

- Elizabeth Williamson (Wall Street Journal), Trade Fight Has Flower Growers Digging In (8/1/2011)

- Felicia Sonmez (Washington Post), Senate leaders reach agreement on Colombia, South Korea, Panama trade deals (8/4/2011)

- Doug Palmer (Reuters),  U.S. business hopes debt deal clears way for trade (8/1/2011)

- Doug Palmer (Reuters), U.S. trade deals could be delayed past August: Daley (7/19/11)

- Doug Palmer (Reuters), U.S. lawmaker presses Obama to back trade deals plan (7/27/2011)

In his most recent story on TAA, House Democrats wary of "path" to trade deals (8/4/2011), Palmer did specify that the deal on TAA constitutes a "slimmed down version of TAA."

 

Trade Deficit is Drag on GDP

Tim Fernholz (National Journal Daily)

FTAs Increase Trade, But Impact Can Be Hard to Measure (7/17/2011 - subscription only)

Fernholz writes, "Though specific sectors and firms advocate free-trade deals to their own benefit, trade is a key driver of overall growth—of the 2.9 percent expansion of the economy last year, 1.9 percent came from exports." Actually, according to the Bureau of Economic Analysis, net exports (gross exports minus gross imports) contributed negative 0.49 percentage points to economic growth last year.  (Exports accounted for a positive 1.34 percent contribution, while imports accounted for a negative 1.83 percent contribution.) In other words, the 2.9 percent growth of the U.S. economy last year would have been almost 0.5 percent higher if not for the $539.3 billion trade deficit.

 

FTAs Unlikely to Boost Exports

Elizabeth Williamson of the Wall Street Journal writes in Trade Fight Has Flower Growers Digging In (8/1/2011) that "The [Korea, Colombia, and Panama] trade deals are key to Mr. Obama's goal of doubling U.S. exports by the end of 2014." Felicia Sonmez of the Washington Post also writes in Senate leaders reach agreement on Colombia, South Korea, Panama trade deals (8/4/2011) that the trade deals are a "key component" of the goal to double exports.

Does the evidence support this idea, though? A Public Citizen analysis of the government's own trade flow data over 1998-2009 found that the growth of exports to FTA partners actually underperformed compared to the growth of exports to non-FTA partners. In fact, our analysis of changes in goods exports found that exports to FTA partners grew at half the pace of U.S. exports to the rest of the world. It is hard to see how FTAs can contribute, much less be "key", to doubling export growth when the U.S. has had slower export growth to FTA partners.

In "FTAs Increase Trade, But Impact Can Be Hard to Measure" (7/17/2011 - subscription only), Tim Fernholz of the National Journal Daily writes, "Free-trade agreements, by eliminating tariffs on imports and exports, have nearly always increased trade between the countries in question, thus benefiting U.S. exporters and bringing cheaper products to American consumers." Again, compared with U.S. trade relationships with non-FTA countries, trade relationships with FTA partners have not much benefited U.S. exporters.

 

U.S. Market Share Not Suffering in Pacific

Tim Fernholz (National Journal Daily)

FTAs Increase Trade, But Impact Can Be Hard to Measure (7/17/2011 - subscription only)

Fernholz writes, “the United States has lagged behind other Pacific countries in building trading relationships and is seeking to reassert its leadership as American trade lags in the region and China becomes more assertive.” The U.S. trade relationship with the Pacific economies is doing just fine in relative terms. In fact, U.S. exports to the Pacific region have grown 35 percent since 2005, while overall U.S. exports to the world have grown at a slower rate, 25 percent, over the same period.  According to U.N. trade flow data, the U.S. has increased its rank or market share in Japan, South Korea, Indonesia, and Taiwan relative to 2005 – all without FTAs. In both Thailand and Taiwan (also not FTA partners), the U.S. is selling more in dollar terms than it was in 2005.

AFP

SKorea deal unlikely before September: US lawmaker (7/27/2011)

This AFP story with no byline states that "The pace of the agreement has given European firms a head start over the United States in Asia's fourth-largest economy."

This assumes that FTAs represent a "head start" in gaining market share. However, the rank of the U.S. in exports to Australia has actually declined since the Australia FTA went into effect, from first to second, while China (which does not have an FTA with Australia) increased its market share and rank in Australia.

 

No Support for Claim of Majority Congressional Support for FTAs

Julie Pace (AP)

AP sources: Trade deals could slip into September (7/18/2011)

Pace's opening paragraph reads, "The all-consuming negotiations in Washington on the nation's debt and deficit may not leave any time this summer for Congress to finalize a trio of free trade agreements backed by most lawmakers and billed by the White House as job creators."

There is scant support for the contention that most lawmakers are in favor of the trade deals. Over 220 House members (over half) from both parties have opposed unfair trade deals in the past. An additional third of the House (132 members) from both parties haven’t been in office long enough to vote for or against a trade pact. This leaves just over 80 members, or under 20 percent of the House, that has consistently backed such trade deals.

While there’s not much evidence that the trade deals are sure to have majority backing, we do know that a majority of House Democrats voted against a NAFTA-style deal with Peru in 2007 and signed onto the TRADE Act, which envisions a complete overhaul of unfair trade deals.

We also know that Republicans have adopted fair trade as an issue. In 182 races of the 2010 election cycle monitored by Public Citizen, 205 candidates campaigning on a fair trade platform, including 75 Republicans, 43 of whom won their races. In the 2006 and 2008 elections, there was a net gain of 72 members of the House and the Senate who had fair trade positions.

 

Oil Does Not Explain NAFTA Deficit

Tim Fernholz (National Journal Daily)

FTAs Increase Trade, But Impact Can Be Hard to Measure (7/17/2011 - subscription only)

Fernholz states that "U.S. reliance on oil imports from Canada" may have obscured the supposed benefits of NAFTA.

In fact, the percentage of the trade deficit with Canada attributable to oil trade actually fell from 50 percent in 1993, the year before NAFTA was enacted, to 36 percent in 2000. While it is true that oil has accounted for a sizable share of the trade deficit with Canada in recent years, the U.S. has run a non-oil manufactured goods deficit with Canada for 15 of the 17 years of NAFTA, suffering massive job losses as a result.

Moreover, Department of Labor data confirms that the trade deficit with Canada under NAFTA has cost hundreds of thousands of jobs in the U.S. Since NAFTA was enacted, imports from Canada or outsourcing to Canada have contributed to the loss of 200,000 U.S. jobs, according to official certifications under the TAA program. Hundreds of thousands of additional jobs have probably been lost to Canada because of NAFTA, but they do not appear in the TAA database because either they did not meet the strict TAA criteria or workers laid off due to offshoring never applied for the program.

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