Serious actions on the Doha Round of WTO trade talks and extension of Trade Promotion Authority for President Bush will only happen if businesses forcefully support those efforts. The Business Roundtable, an association of chief executive officers of leading U.S. companies with $4.5 trillion in annual revenues, more than 10 million employees and $90 billion in annual research and development spending, has released two analyses on trade. One paper “Trade and American Jobs – The Impact of Trade on U.S. and State-Level Employment” addresses the gain and loss of U.S. jobs, and the other “We Can’t Stand Still: The Race for International Competitiveness” explains the worldwide increase in Free Trade Agreements (see businessroundtable.org.)
The jobs paper recognizes the fact that jobs are both gained and lost in international trade. This is too often ignored by export promoters who are not willing to admit that trade causes pain for some businesses and workers, even though trade increases the overall standard of living for workers and consumers. The authors, Laura M. Baughman and Dr. Joseph Francois of Trade Partnership Worldwide, LLC, estimate that 31 million jobs in the U.S. in 2004 were related to exports or imports, 18.4 percent of total employment, with every state having a net gain of jobs. This is up from 10 million jobs in 1992, 10.4 percent of employment, before implementation of the Uruguay Round WTO Agreement and NAFTA. The processes of designing, making and moving goods out of the U.S. add to the creation of jobs. While products may be manufactured outside the U.S., all of the design work, transportation, distribution and advertising work occurs in the U.S.
The paper notes that about half of U.S. merchandise imports are raw materials, capital goods and industrial products used by U.S. manufacturers to make products in the U.S. The authors estimate that in 2004 an additional 1.15 million manufacturing jobs existed in the U.S. because of trade compared to only 370,000 additional jobs in 1992.
Wages are also higher because of trade. In 2004, real U.S. wages were 5.6 percent higher than they would have been with no trade. This compares to 2.3 percent higher wages in 1992. Manufacturing jobs that exist in the U.S. tend to be higher skilled ones like chemicals and machinery manufacturing where the U.S. is competitive. High-skill, high-wage services jobs in banking, finance, law, insurance, and advertising are also created by trade.
The impact on jobs of foreign investments in the U.S. and U.S. investments in other countries is also addressed. According to the August 2006 Survey of Current Business from the Bureau of Economic Analysis of the U.S. Department of Commerce, U.S. affiliates of foreign companies directly employed 5.1 million Americans in 2004. In a 2003 report, economists with the National Bureau of Economic Analysis and the U.S. Bureau of Economic Analysis found that a 10 percent increase in sales by a foreign affiliate increased U.S. parent company employment by 0.3 percent. If this relationship held for all exports, it would translate into roughly 3 percent of U.S. employment, about 5 million jobs.
The second white paper on international competitiveness compares the number of U.S. free trade agreements (FTAs) to those of other countries. The U.S. has ten FTAs in place, three waiting Congressional implementation and three others in active negotiations. The U.S. has been criticized for focusing too much on FTAs and not enough on the WTO multilateral negotiations. This paper estimates that there are approximately 300 FTAs already in force in the world, with half of those coming since 2002, and many more in negotiations. More than half of world trade occurs through FTAs. The U.S. is a laggard, not a leader, in the FTA movement.
In the Asia Pacific region the number of FTAs has tripled over the past five years from 57 to 176 by the fall of 2006. The European Union is a party to 21 FTAs, more than any one else, and has 12 more negotiations proposed or underway. Until recently Japan rejected FTAs in favor of the WTO process. Since 2002 they have concluded four FTAs and have 14 more negotiations active or proposed. China has 11 active or proposed negotiations, including a partially completed agreement with ASEAN and talks with the Gulf Cooperation Council, Australia and Pakistan. India has 19 active or proposed negotiations including with the EU, South Korea and MERCOSUR (Brazil, Argentina, etc). Brazil, on its own and through MERCOSUR, has five active or proposed negotiations including with the EU, Mexico and South Africa. As the Doha Round WTO talks struggle for progress, FTAs are becoming an even more important option to gain the benefits of more open trade.
Governments are also negotiating bilateral investment treaties (BIT) to provide for open and secure investment environments and mutual recognition agreements (MRG) on regulatory barriers. Over 2200 BITs are now in force and the United States ranks 25th in the number concluded.
The paper points out an example of the impact of FTAs. Before the U.S.-Chile FTA, U.S. exporters faced an across the board 11 percent tariff while Canadian products entered duty free because of the Canada-Chile FTA. Without additional FTAs the U.S. will face tariffs and other trade restrictions, bad precedents on handling trade issues, unfavorable product standards and regulatory models and lack of investment protection.
Freer trade is beneficial to producers and consumers, and leaders of countries naturally seek out agreements that improve the standard of living of their citizens. The jobs analysis clearly shows that the concern with more open trade is mostly about the turbulence associated with changes caused by increased trade and not with the final outcomes from increased trade.