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  • How Free Trade Helps Employment and the Economy

    Since 1989, the United States has enacted numerous free trade agreements with countries around the world. These agreements have increased trade, improved international relations, and strengthened the U.S. economy. But don’t let the facts stop a good political fight.

    The North American Free Trade Agreement (NAFTA), enacted in 1993, inspires the most controversy. For example, the Economic Policy Institute (EPI), in an exercise that stretches the logic of statistical analysis well past the breaking point, claims that the net loss of U.S. jobs due to NAFTA from 1993 to 2002 was 879,280.

    According to EPI, a rising trade deficit means more jobs are being displaced by imports than created by exports. That’s not the case. Many U.S. imports are inputs that help create jobs. Oil provides one example of this process. Importing oil reduces gas prices and transportation costs, allowing companies to hire more workers. The price we pay for gas would skyrocket if the U.S. stopped importing oil and relied solely on domestic oil. Imports also create jobs in the wholesale, retail, and shipping industries. Many critics of trade deficits also make the mistake of counting imports as a “cost” while failing to count inflows of foreign capital as a benefit.

    Here are the facts: From 1993 to 2002, the U.S. economy posted a net gain of 20 million jobs. More specifically, since NAFTA took effect, the labor market had a net increase of 26 million jobs. When critics assert that NAFTA reduced employment in the United States, there are 26 million arguments against that claim.

    The argument that trade agreements result in net U.S. job losses is not supported by economic theory or real-world data. Free trade agreements make people more productive by enabling them to specialize and work together more efficiently. We need more trade, not less, and it would be a step in the right direction for President Obama to submit the long overdue trade agreements with Colombia, Panama, and South Korea to Congress with no strings attached as soon as possible.

    Cyril Handal is a member of the Young Leaders Program at The Heritage Foundation. Click here for more information on interning at Heritage.

    Posted in Economics [slideshow_deploy]

    10 Responses to How Free Trade Helps Employment and the Economy

    1. Redfray says:

      I don't think I can except the EPI ideology about domestic oil verses foreign oil. I can believe NAFTA is not the only cause of lost jobs in America. New regulations are just as much the blame for job lost as trade laws. Many of the EPI voices, including other organizations, are always somewhat short on information in there reporting. The truth is something not cherished by most companies or government organizations, it doesn't fit the political advantages needed by the income they recieve. Taxes might have been a better way of explaining imports verses exports, it seems to be the problem most companies are having making ends meet, and the taxes includes forced money spending by government control of the economy.

    2. Jeff, Illinois says:

      Now I know FREE TRADE is a problem . . because the Heritage Foundation supports it. Basic logic says that industries are going to move to other countries . . all things being equal (i.e. FREE TRADE) if wages are much lower elsewhere . . American based industry can't possibly compete when the playing field is imbalanced (wage-wise). In our history tariffs were an effective way to protect our work force / middle class. Look at present day Germany . . and how they protect their workforce with a tariff structure. No Free Trade is great for corporations not for our middle class work force.

      • Cyril says:

        @Jeff
        Jeff, I would ask you to keep an open mind and look at the facts presented in the article and argue off those points rather than simple classify the Heritage Foundation as always wrong. Take a look at this study done be 2 California professors which shows that exporting manufacturing results in more higher-paying jobs here in the U.S. which I think we can both agree is very beneficial to the middle-class. http://www.economist.com/node/12815617?story_id=1
        With regard to your point about Germany, tarrifs, historically in the U.S. drive up costs and actually increase unemployment. Take for example the Smoot-Hawley Tarriff which was passed in similar conditions to our own today i.e. a recession. "Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933."

        • Jeff, Illinois says:

          Citing your article offering . . a view from the Economist (which is known to extensibly favor free trade) while also supporting the positions on the problem of Global Warming . . when the Heritage Foundation deems such a cult . . So then can we conclude Global Warming is a real problem?

    3. athena says:

      Technology has replaced so many jobs– I can list 30 off the top of my head, and created many too.
      However, Chinese manufacturers have replaced ENTIRE INDUSTRIES —with your free trade.
      FAIR TRADE is what we want- there is nothing fair about unilateral free trade with a communist country or any country whose minimum wage is 1/100 of yours. The result is mal investment, shoddy quality, giant trade deficits and and skilled jobs fleeing forever. Tariffs must apply at least temporarily until there is a leveling of currencies. Otherwise you get the chaos we have now in the currency markets globally.

      • Cyril says:

        @Athena
        Tthe current trade agreements are with South Korea, Panama and Colombia, none of which are communist countries. Additionally, these agreements would eliminate tariffs on American goods which will help exporters to be more competative and allow them to hire more workers. I would also refer you to what is know as the "iPod Study" which shows that the creation of iPods have allowed for higher-wage jobs for workers in the U.S. http://www.economist.com/blogs/freeexchange/2008/

        • Middle Class Citizen says:

          @Cyril, since almost all US manufacturing has been outsourced, there is not much for the US to export. Most people are aware that unfortunately we have become a consumer-based economy – not a production-based economy. So there are fewer and fewer exporters in America to create these jobs you speak of. It follows that there are fewer jobs for the working American public. This is made worse by the difficult economy created by such policies, because now more citizens need to put off retirement because they cannot afford it.

    4. David says:

      I have watched manufacturers become marketing organizations that call themselves manufacturers. They had to do it to survive. The quality is way down as I have 13 years of servicing the equipment to compare objectively. The next step is to go direct to people that have been carefully trained to look at price first. Then we lose the marketing "manufacturers". What has been true in economic history has to be re-evaluated constantly. There exists foriegn efficiencies now and barriers domestically by legislators that don't live in our world that make it necessary to look at today and not yesterday. There exists a greater divide in healthcare costs and regulation than ever existed before. All we have left is our innovation. If other countries don't respect our intellectual property rights, what do we have left? We need trade but we need to be smart about it. We haven't been.

    5. Middle Class Citizen says:

      Cyril, your numbers do not match reality. The vast majority of citizens know people who are out of work (not by choice). Many of those out of work have seen their jobs disappear overseas. BUT perhaps you are in the 1% that is not affected by all this. Perhaps you are in the 1% that does not know people who are out of work. Sadly, the 99% of us do have such direct knowledge of the disappearance of jobs. Please revisit your numbers – since they do not represent reality, they need to be revised. Yes, it is the numbers that need to be revised, because unfortunately, reality is what it is. Or do you think your numbers are more real than the unemployment rate?

    6. @p_armstrong says:

      You don't see many people throwing good money after bad on the issue of free trade anymore but this author is one of them that does.

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