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Gains from free trade agreements have been undersold, not oversold

Gains from free trade agreements have been undersold, not oversold
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Critics of trade agreements — and they’ve been around since the United States negotiated its first one with Israel in 1984 — claim the deals’ proponents oversell them.

Indeed, in 1993, after the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico had been concluded but not yet approved by Congress, 175 U.S. agricultural organizations placed an ad in The Washington Post, estimating the trade deal would increase American farm exports to Mexico by more than $10 billion. The groups also forecast that NAFTA would generate an additional 56,000 U.S. jobs.

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The predictions were wrong. By the time Mexico’s tariffs on U.S. goods were eliminated in 2008, U.S. agricultural exports had increased by more than $15 billion and generated well over 100,000 jobs — $5 billion and almost 50,000 jobs more than projected.

 

Exports of U.S. pork south of the border, for example, have increased by $1 billion under NAFTA; they had been estimated to rise by $440 million. Last year, U.S. hog farmers shipped $1.36 billion of pork to Mexico.

Likewise, proponents of U.S. trade pacts with Australia and the six-country Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), for instance, underestimated the benefits of the deals.

Before the free trade agreement (FTA) with Australia took effect in 2005, Iowa State University economist Dermot Hayes estimated that U.S. pork exports "Down Under" would increase from $10.6 million to more than $60 million annually. In 2016, they were nearly $178 million.

He estimated that U.S. pork sales to the DR-CAFTA countries would increase by a total of $36 million a year. But last year, exports just to the Dominican Republic and Honduras were more than $104 million, up from the less than $40 million shipped to all the DR-CAFTA nations in 2006 — the year before the agreement became effective.

So rather than being oversold, the projected benefits of FTAs to the United States tend to be understated, as was the case with NAFTA, which has been an overwhelming success for American agriculture and for many other sectors of the U.S. economy.

Canada is the No. 2 export market for U.S. agricultural products; Mexico is No. 3. In 2016, U.S. farmers exported more than $38 billion of products to the two nations, or 28 percent of all U.S. agricultural exports. Those exports generated more than $48 billion in additional economic activity and supported nearly 287,000 U.S. agricultural jobs.

Trade, particularly free trade, isn’t a zero-sum game.

When NAFTA took effect Jan. 1, 1994, trade between the United States and Mexico was only $50 billion each way; last year, U.S. exports to Mexico were nearly quintuple that amount at $231 billion, and they supported 3 million U.S. jobs.

While imports to the United States from Mexico in 2016 were $294 billion, those, too, supported millions of American jobs.

The United States imports products because the American economy is consumption-driven, and consumers demand them. Many of those “consumers” are businesses that use imported components to manufacture goods, some of which are then exported and all of which support U.S. jobs.

Again, NAFTA is illustrative: U.S.-produced parts and components comprise, on average, 40 percent of the products imported into the United States from Mexico, according to the U.S. Commerce Department; 20 years ago, that would have been less than 5 percent.

That two-way trade, alone, supports 6 million U.S. jobs. It also boosts Mexico’s economy, raising the standard of living for Mexican consumers, who more easily can afford to purchase U.S. imports.

We live in a global marketplace, with supply chains across borders. Trade allows for specialization and efficiency gains, propelling an economy forward. Trade is a positive-sum game.

It also should be pointed out that FTAs have provided benefits beyond trade, including improved relations with our partner countries, better investment and supply chains, increased cooperation on important issues such as drug trafficking and terrorism and greater political stability.

One final point on FTAs: The United States now exports almost as much to the 20 countries with which it has trade agreements than it does to the other 173 nations of the world.

Oversold? No, U.S. free trade agreements are working better than expected.

(Note: Referenced trade statistics are from the U.S. Trade Representative, U.S. Census Bureau and U.S. Department of Commerce websites, respectively. Pork export statistics can be found on the USDA website.)

Neil Dierks is CEO of the National Pork Producers Council, which represents the public-policy interests of America’s 60,000 hog farmers.