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Will the New Free Trade Deals Create U.S. Jobs?

On Wednesday a divided Congress agreed to sign free trade pacts with Colombia, Panama, and South Korea that are meant to boost U.S. exports and investment in foreign business by reducing tariffs and other protectionist barriers. While business leaders and some trade unions—auto manufacturers, in particular—are united in support of the deals, many think they will hamper U.S. employment by opening up workers to competition from cheap foreign jobs. Before this, the last big trade pact was the 1993 North American Free Trade Agreement, between the U.S., Mexico and Canada. The Study takes a look at NAFTA’s effect on domestic employment to forecast that of the latest trade pacts.

According to a 2003 paper by Robert E. Scott of the Economic Policy Institute, NAFTA increased employment in Mexico and Canada while reducing it in the United States. In the decade since NAFTA was passed, the U.S. imported 30 percent more goods from Mexico and Canada than it exported back, resulting in 879,280 net jobs lost in all 50 states and the District of Columbia from 1993-2002. Manufacturing growth in Mexico and Canada resulted in large part from a boost in foreign direct investment (FDI) from the U.S., which NAFTA encouraged by protecting investors from losses on risky bets, north and south of the border. Opponents of the latest deal argue that FDI from the U.S. will be deleterious to U.S. employment, especially given cheap labor costs in Colombia, where trade unions have long been weakened by the targeted suppression and murder of their members. The good news for American workers is that the administration included benefits in the latest package for workers whose jobs will be displaced by the new pacts.