Trade Agreements are Not Job-Killers, Despite Sen. Reid’s Remarks
The Senate and House votes on the free trade agreements with Colombia, Panama, and South Korea seem inevitable, now that the main Democratic roadblock to the vote, the Trade Adjustment Assistance package, was extended by a Senate vote. While not as generous as the 2009 bill, it will still cost $900 million, and it expands eligibility criteria. (CEI had discussed the new TAA deal in detail before.)
Now, opponents of the agreements are looking for more handouts by the federal government and are voicing their opposition to the deals. Senator Majority Leader Harry Reid (D-Nev.) stated he will oppose all three deals when they arrive on the Senate floor. This is unsurprising, since Sen. Reid has opposed all recent free trade agreements, including the ones with Chile, Singapore, and Central America and the Dominican Republic (CAFTA-DR).
Reid is a strong supporter of organized labor, which makes up 15 percent of the workforce in Nevada. Union groups, like the AFL-CIO, claim that trade agreements cost American jobs. The AFL-CIO has said that NAFTA cost the United States nearly 700,000 jobs, while the pending deals with Korea and Colombia will cost 159,000 and 54,000 jobs respectively.
However, Reid does not mention the types of jobs lost, or where the jobs were lost. In fact, the claim that NAFTA cost 700,000 jobs is very misleading. Unemployment reached a 1990s high in 1992 (7.8 percent in June 1992), and decreased continuously throughout the decade. When NAFTA came into effect on January 1, 1994, unemployment did not rise, but actually continued to decrease until 2000, and was stable until late 2001.Neither did wages decrease because of free trade agreements. During the years following the implementation of NAFTA, median household income in the United States rose significantly, and remained stable after that.
Trade brings competition to domestic firms, and ultimately, consumers benefit because they get to buy a wider variety of goods, at lower prices. Inefficient firms tend to disappear because of increased competition from trade, but the economy as a whole improves during this process. Ludwig von Mises wrote in Planning for Freedom that “Profit and Losses withdraw the material factors of production from the hands of the inefficient and convey them into the hands of the more efficient.” International trade accentuates this process, and allows the United States to concentrate resources on the goods they are better suited to produce and export, such as heavy machinery, agricultural goods and high-level services (financial, consulting).
Senator Reid should realize that trade is good for Americans. If we are to protect current jobs from foreign competition, we will have a stagnant economy, with reduced innovation. Nobody protected typewriter industry jobs from the invention of computers, yet these jobs are seldom missed. Sweatshop style jobs are rarely seen in this country, having been exported to developing countries around the world, and they are seldom missed. Sen. Reid should understand that labor and capital are never fully unused and left to rot, but actually transform and find new uses with the changing economy. Thirty years ago, few people imagined the amount and types of jobs present today in internet and technology companies, and the specialization brought about by trade. Sen. Reid and other politicians should stop worrying about “protecting” American jobs, and American workers should be scared of politicians who claim to protect them.