FTA Would Further Deplete Middle Class
The United States-Korea Free Trade Agreement, still pending congressional approval, seeks to bring down the trade barriers through the removal of 93 percent of the tariffs between the two countries as well as a partial liberalization in services trade.
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A study, completed by the U.S. International Trade Commission (ITC), concluded that U.S. GDP would increase by $10.1 to $11.9 billion. According to the ITC, in 2009 the U.S. had a trade deficit of $11.7 billion with South Korea, despite Korea currently having no preferential trade programs with the United States. So naturally, with the implementation of a Kor-US FTA, the U.S. would see a surge of imports that would further add to our trade deficit.
Despite the increase in GDP, the U.S. would suffer a decrease in the income realized by U.S. manufacturing workers as the more valuable auto and electronic manufacturing industries shift to Korea and the less valuable meat packing industries witness an increase in employment. The ITC study indicates that jobs will likely be lost in these high-wage industries. Public Citizen took the data from ITC in percent form and transformed it to show the tangible effects of employment under the FTA.
As you can see from Public Citizen’s rehashing of ITC numbers, the auto industry will lose approximately 1750 workers, while workers in the electronic equipment industry will decrease by roughly 5,000. Auto manufacturing industry workers get paid, on average, wages that are 9.2 percent higher than overall private sector wages while electronic equipment manufacturing industry workers, on average, receive 40.5 percent higher wages when compared to all private sector jobs.
Large rises in the trade deficit are the main force behind the loss of employment in these sectors, where the deficit will increase by about $1.7 billion as seen in the table. The ITC predicted that there would actually be a decline in the absolute value of manufacturing exports, rather than just a worsening of the trade balance. As shown in table 2.3 of the ITC study, the total value of exports of electronic equipment is expected to decline up to $381 million if the Kor-US FTA is implemented.
The ITC model is structured in such a way that the number of employees in the study does not vary. In other words, workers lost from one sector would remain employed as they fill positions in another sector. So, as workers leave the high-paying jobs in the sectors mentioned above, they will be moved into other sectors, such as the meat-processing sector, which will witness increased exports due to the Kor-US FTA. The ITC projected that employment in the bovine meat industry would rise by 0.7 to 1.8 percent, as well as employment in the livestock-raising sector. This transfer of employment from one sector to another is significant because employees of the meat production industry are paid very poorly. The average hourly wage for workers in this sector is only $13.69, which is 36.7 percent less than the average wage paid in the private sector, and roughly 43 percent lower than the wages paid in the auto industry. On top of this, workers in the meat-procession industry face more dangerous work conditions. The Government Accountability Office found that “injury and illness rates among meat and poultry plants remain among the highest of any industry.”
While the projections from the ITC look unsettling, they should actually be viewed as best-case scenario estimations. The ITC does not particularly have a favorable track record in regards to its past overly optimistic estimations. For example, in 1999, the ITC used what is essentially the same model and found that the trade deficit between the U.S. and China would increase by only $1 billion following China’s WTO ascension. However, between 2001 and 2008 the trade deficit actually increased by a massive $167 billion and although that sharp increase cannot be fully attributed to the WTO ascension, it no doubt had more of an impact than $1 billion.
Measures can be taken that would ensure U.S. auto-workers benefit rather than experience harm from the Kor-US FTA. Rep. Sander Levin and other Congress members have proposed these new measures to reduce the nontariff barriers that U.S. vehicles face in the Korean market. Like former FTAs the U.S. has enacted in the past, the Kor-US in its current form would do its part to further erode the middle class and high-value manufacturing jobs in the United States. Until there are provisions in the FTA that benefit the U.S. and American workers as a whole, rather than those represented by the lobbyists of the large meat-processing industry, American citizens need to keep pressure on our representatives. To counter the pressure from these harmful lobbyists, contact your representatives and tell them not to approve the Kor-US FTA until the president makes provisions to protect American workers, and as always keep coming back for news of any changes in regards to the Kor-US FTA and other U.S. economic affairs.
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