That’s some rumble that’s broken out in the last 24 hours over Washington Post “Fact Checker” Glenn Kessler’s decision to award a “four Pinocchios” (yes, it’s as bad as it looks) to a recent Public Citizen analysis of the results of the U.S.-Korea free trade deal, and of its implications for President Obama’s proposed Pacific Rim trade agreement.
I’m not a huge fan of the habit of Public Citizen (and others, including the Obama administration and its most recent predecessors) of forecasting job creation and displacement based on trade flows fosteredrecorded and expected under current and prospective trade pacts. I just don’t believe that economics is sophisticated enough to produce reliable numbers. But I fully agree with Public Citizen that, from a trade flow perspective, the Korea deal has been a disaster, and that this performance should prompt grave doubts about the Trans-Pacific Partnership (TPP) that’s following the same blueprint.
I track Korea deal results, too – here’s my latest take.
What I’d like to add to the latest debate are these two points:
>I’ve had good experiences with Kessler, and believe his Korea trade analysis reflects an honest effort. But I’m stunned that he seems to accept the administration’s argument that it’s best to count all exports in trade analyses, not simply domestic exports. The former includes goods that are trans-shipped from foreign production sites through the United States to other foreign destinations, and therefore include mostly foreign content, as well as other categories of products. (Here’s a complete official definition.)
No doubt, as the U.S. government emphasizes, these products contain some American content, or receive some processing domestically that adds some value. But even the official rationale for counting these re-exports acknowledges that these goods have not undergone transformation that is “substantial.” In addition, the notion that activities taking place in the United States, like packaging and testing, turns them into bona fide exports overlooks a reality that’s especially important when evaluating the impact of trade: These same activities would have taken place if the goods were domestically produced from the get-go. Thus, their net contribution to American growth and hiring is truly minimal.
Finally, on this score, the government’s insistence on treating re-exports the same as “real” exports – because the former incorporate some U.S. parts and components – is completely unreasonable. If the government were serious about trade-related data, and made an honest effort to calculate the U.S. and foreign content in goods that are trade, including re-exports would have merit. But Washington has no idea where the content of manufactured systems comes from except for the automotive sector and the Transportation Department’s (invaluable) database containing much of this information for motor vehicles sold in the American market. Until the government gets a decent handle on this subject, treating goods coming into this country as entirely Made in the USA is unacceptable.
>It was also discouraging to see Kessler accept, at least implicitly, the administration line that trade agreements affect the economy only by affecting exports. Yet even this blinkered methodology can’t conceal underwhelming performance by the Korea deal. Using the time-frame preferred by Kessler and the administration (annual results between 2011 – the year before the trade deal went into effect – and 2014), reveals that U.S. goods exports to Korea rose by 2.49 percent. The total for goods exports to the world as a whole? They were up 9.51 percent during this period – nearly four times faster!
The numbers are even worse than they look, however, since Korea has long been regarded as one of the world’s most protectionist countries. As a result, successful American trade diplomacy should be having an even greater market-opening impact, and juiced U.S. overseas sales especially strongly. Nor does Kessler’s partial explanation – slowing Korea growth – hold any water. After all, it’s not like many other foreign economies are on fire these days.
Whenever a thoughtful, fair-minded reporter like Kessler examines trade policy and trade data in detail, it’s a cause for celebration. Here’s hoping he takes these constructive criticisms to heart in his next investigation.