Congress Passes Controversial Free Trade Agreements

Congress approved free trade agreements Wednesday with South Korea, Colombia and Panama, ending a four-year drought in the forming of new trade partnerships and giving the White House and Capitol Hill the opportunity to show they can work together to stimulate the economy and put people back to work. The three landmark deals between the United States and trading partners South Korea, Colombia and Panama approved by the U.S. Congress late Wednesday represented the largest free trade agreements in the U.S. since 1994 and the first free trade agreement made by the U.S. since 2007.

Although free trade provides overall benefits, removing a trade barrier on a particular good hurts the shareholders and employees of the domestic industry that produces that good. Some of the groups that are hurt by foreign competition wield enough political power to obtain protection against imports. Consequently, barriers to trade continue to exist despite their sizable economic costs. According to the U.S. International Trade Commission, for example, the U.S. gain from removing trade restrictions on textiles and apparel would have been almost twelve billion dollars in 2002 alone.

In rapid succession, the House and Senate voted on the three trade pacts, which the administration says could boost exports by $13 billion and support tens of thousands of American jobs. None of the votes were close, despite opposition from labor groups and other critics of free trade agreements who say they result in job losses and ignore labor rights problems in the partner countries.

President Barack Obama said passage of the agreements was “a major win for American workers and businesses.”

“Tonight’s vote, with bipartisan support, will significantly boost exports that bear the proud label `Made in America,’ support tens of thousands of good-paying American jobs and protect labor rights, the environment and intellectual property. … I look forward to signing these agreements.”

Ultimately, the question of what NAFTA’s “disadvantages” are depends on whom you ask, but some of NAFTA’s consequences do seem obviously disadvantageous.

Increased U.S. Trade Deficits

NAFTA has caused trade between the three member countries to more than double. However, given the relative economic disparities between the United States and our two neighbors, reduced barriers to trade have led to much larger trade deficits. Our trade deficit with Canada was $22 billion in 2009, during the fallout from the global economic crisis. Prior to that, the deficit was $78 billion in 2008, $68 billion in 2007, and $72 billion in 2006. With Mexico, our trade deficit was $48 billion in 2009, $65 billion in 2008, $75 billion in 2007, and $65 billion in 2006. These figures clearly demonstrate an imbalanced relationship.

Expense

Even though free trade is primarily meant to lower costs on items, it can actually end up being quite expensive. There are complicated rules and contract conditions that go into the making of free trade agreements to protect the interests of the countries involved. As such, there is usually the need to establish several committees and working groups to handle the free trade agreements. For example, the NAFTA agreement involved a contract that was more than 1,000 pages long and more than 25 committees. In essence, free trade can be resource intensive, requiring multiple agreements, ways of enforcing rules and compliance among the partner countries.

Competition

The removal of international trade barriers can open up some domestic industries to unsustainable competition. Some international markets are not on the same level as the domestic industry and are able to produce a certain commodity way below cost. As such, this surplus commodity gets flooded into the local market at much cheaper prices and essentially takes over that industry.

Outsourcing and U.S. Manufacturing Decline

One of the main structural weaknesses in any free-trade agreement is the fact that it gives large manufacturing companies a strong profit motive to relocate their operations to a country with cheaper costs for labor and materials.

Environmental Degradation

By shifting production out of the United States, companies can take advantage of laxer environmental laws — particularly in Mexico, where NAFTA is concerned. The same production, effected more cheaply and more dirtily, necessarily results in harsh environmental consequences.