If I were acting Deputy U.S. Trade Representative Wendy Cutler, or anyone else in the Obama administration working on American trade policy, my top priority would be shutting down the U.S. government apparatus that gathers and publishes trade and other economic statistics. Otherwise, it’s going to remain ridiculously easy for analysts to expose their claims of trade policy successes for the pathetic cherry-picking they represent.
Take the U.S.-Korea trade agreement recently negotiated by Cutler and her colleagues at the U.S. Trade Representative’s Office. They’ve portrayed this deal as the model for the much bigger, 12-country Trans-Pacific Partnership (TPP) that the president wants to sell Congress. But the numbers Washington keeps turning out show unmistakably that their Korea blueprint is a recipe for economic disaster.
As the monthly U.S. trade data keep reminding anyone caring to examine them, since the Korea agreement went into effect in March, 2012, the U.S. trade deficit in goods with Korea has literally exploded on a monthly basis – from $564.2 million to $3.0677 billion this past January (the latest data). That’s a more than five-fold jump! By comparison, the global U.S. goods deficit during that period actually fell by 16.24 percent.
To be fair (which is more than Cutler and her administration colleagues deserve), nearly all of the improvement in the worldwide U.S. goods trade shortfall has resulted from the recent revolution in American energy production, and the United States doesn’t trade oil with Korea. So let’s strip it out of the American global totals. And we see that since the U.S.-Korea trade agreement went into effect, the U.S. non-oil goods deficit has risen by 36.22 percent – a fraction of the Korea increase.
But here’s how Cutler views her handiwork: “I am proud to welcome the enhanced opportunities and benefits the agreement continues to bring to American businesses, workers, farmers and ranchers over the past three years. Today, the U.S.-Korea trade and investment relationship is substantially larger and stronger than in 2011, and has helped secure a strong year for American exporters….Not only has KORUS increased market access, strengthened intellectual property protection, increased regulatory transparency, and leveled the playing field for American businesses and workers, it has benefited American producers in the manufacturing, agriculture, innovative, and service sectors.”
Her evidence? Entirely on the export side. For starters, Cutler claims that total U.S. sales to Korea hit a new record of $65.3 billion last year, but even this seemingly uncontroversial claim can’t be independently verified. American goods exports to Korea did reach an all-time high in 2014 ($44.54 billion). But U.S. service trade data for individual countries lags by two years. The latest (2012) numbers peg American services exports to Korea at $18 billion.
The sorriest aspect of her argument, however, is its treatment of the details. It’s entirely valid to observe, per Cutler, that U.S. automotive exports to Korea’s long closed market are up sharply (from a very small base) since the deal went into effect, and that American farmers have benefited big-time as well. But it’s nothing less than laughable to harp on skyrocketing cheese sales to Koreans, or the fact that American-produced films are killing it in Korean theaters.
Want some genuinely relevant granularity? Then look at trade balances – the sum of imports and exports. And that’s where the failure of American trade diplomacy with Korea becomes most glaringly obvious. I just examined the top 50 American goods sectors that ran trade surpluses and deficits with Korea during Cutler’s chosen 2011-2014 time-frame. (As with U.S. global trade generally, import and export flows are heavily concentrated in a relatively small number of sectors.) And here’s what should bother all Americans.
Of the 50 leading U.S. winners with trade with Korea, 26 boosted their surpluses between 2011 and 2014. But only twelve were from manufacturing – the American economy’s leader in productivity and innovation, and thus its best hope for returning to real prosperity. And although several of these sectors both capital- and technology-intensive (like aerospace and pharmaceuticals and semiconductor production equipment), three were in the processed food sector (e.g., fruit juices and that cheese emphasized by Cutler), where technology intensiveness is relatively low (along with wages).
Of the 24 sectors whose trade surpluses with Korea fell during the 2011-2014 period, 14 came from manufacturing. And they also included such advanced sectors as plastics and resins, turbines and turbine generator sets, and many big chemicals categories.
More troubling results emerge upon examining the 50 industries in which the United States runs its biggest trade deficits with Korea. All are in manufacturing, and in 41, the deficits have grown from 2011 to 2014. These sectors include such high value industries as autos, nearly all autoparts categories, telecommunications gear, construction equipment, commercial heating and cooling equipment, metal cutting machine tools, and farm machinery & equipment.
There’s a scale problem Cutler doesn’t mention, either. The surpluses of the 50 biggest American industries running surpluses with Korea totaled $18.38 billion in 2014. The deficits of their 50 biggest deficit counterparts were collectively more than twice as great – $46.51 billion.
Since “it’s a free country,” Cutler has every right to make whoppingly misleading statements about the Korea deal or any other development in U.S. trade policy. Whether she – or any of her colleagues – is entitled to deceive Americans while working for the taxpayer is another matter entirely.