On Anniversary of U.S.-Korea FTA Implementation, U.S. Exports Down 9 Percent, Imports from Korea Up and Deficit With Korea Swells 30 Percent, Undermining Obama Export and Job Growth Goals
New Report Spotlights Trade Rules' Conflict with Sound Financial Regulation

Don't Be Fooled by Data Tricks: The Case of the Dueling Korea FTA Press Releases

On Friday we sent out a press release exposing the export-chilling, deficit-expanding, job-eroding track record of the Korea Free Trade Agreement (FTA) on the first anniversary of its implementation.  That same day, the U.S. Trade Representative (USTR) sent out a press release singing the export-boosting praises of the Korea FTA.  What could explain this riddle of dueling press releases?   

Some basic data tricks.  USTR’s press release relied on five sleights of hand to gussy up the unsightly Korea FTA data and generate some misleading, albeit rose-colored, conclusions:

  • Cherry-picking.  Overall U.S. exports to Korea have fallen 9 percent under the FTA.  USTR first tries to get around this inconvenient fact by simply “disregarding” particularly large exports that declined (e.g. corn) so as to produce a sanitized illusion of an increase in “total U.S. exports.” (By “total U.S. exports” they mean “some U.S. exports, excluding particularly important export sectors that would contradict our argument of a total export increase.”)  USTR saves most of its FTA-touting words for some narrow sectors that were export-increasing exceptions to the export-falling rule of the Korea FTA.  For example, while total U.S. agricultural exports to Korea have plunged 29% under the FTA, USTR spotlighted export rises in specific agricultural products like soybeans and grape juice.  Such “soybean-picking” avoids the essential question: what has been the total effect of the Korea FTA on U.S. exports and jobs?  The inconvenient answer: a loss. 
  • Using the wrong timeframe.  The USTR press release acted as if the Korea FTA was in effect for the full 2012 calendar year, though it only took effect on March 15, 2012 (hence the timing of the press release).  The agency errantly compared the full year of data for 2011 with the full year from 2012, claiming the results to be due to the Korea FTA.  This timeframe starts and ends too soon.  An accurate assessment of the Korea FTA’s legacy would begin the data comparison with the first full month in which the FTA was actually in effect: April 2012 (vs. April 2011).  Also, the timeframe would not stop with the end of 2012, but with the most recent month for which we have data: January 2013.  Perhaps USTR decided to omit January because it marked the highest monthly U.S.-Korea trade deficit on record.  Whatever their reasons, the timeframe mistake skews each starry-eyed data point that USTR presents in its release. 
  • Ignoring imports.  As per usual, USTR has examined only one side of the trade equation.  The word “imports” doesn’t appear once in their press release.  But in the same way that exports are associated with job opportunities, imports are associated with lost job opportunities when they outstrip exports, as dramatically seen under the Korea FTA.  Under the deal, the U.S. trade deficit with Korea has swelled 30 percent, costing tens of thousands of U.S. jobs.  By ignoring rising imports, USTR claims a gain for auto manufacturers under the FTA.  But while U.S. auto exports to Korea have increased by $65 million under the deal, U.S. auto imports from Korea have ballooned by $2.3 billion.  The resulting 18 percent increase in the U.S. auto trade deficit with Korea is a net loss for U.S. automakers, not a net gain. 
  • Counting foreign-made “exports.”  USTR once again inflates the value of U.S. exports by counting goods that actually are made overseas – not by U.S. workers.  These “re-exports” are goods made elsewhere that are shipped through the United States en route to a final destination.  To assess what the Korea FTA has actually meant for U.S. jobs, our release eliminated re-exports in calculating the 9 percent drop in U.S.-made exports to Korea under the deal. 
  • Forgetting about inflation.  It appears that USTR forgot to adjust its numbers for inflation, an omission that artificially magnifies the value of U.S. exports in 2012 relative to 2011.  All of the data contained in our press release is properly inflation-adjusted to show a truer picture of U.S. exports under the Korea FTA – a picture that unfortunately does not look too pretty without all of USTR’s cropping and airbrushing.    

If we want trade policy that behooves the majority, rather than an expansion of the damaging Korea FTA model, then we have to look honestly at the Korea FTA track record.  If instead we twist the data to make mistakes look like successes, we are binding ourselves to the replication of failure.  

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Don Juan of Austria

Thank you for your excellent analysis, and for exposing the data shenanigans being played by FTA proponents.

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