Pending free trade agreements with South Korea, Panama and Colombia could bolster certain sectors of the American economy, particularly manufacturing and agriculture, but a likely influx of foreign products could also undercut other sectors.
Congress overcame years of political discord in October when it passed the trade pacts in October, which were originally formulated under President George W. Bush and renegotiated by President Barack Obama. The deals divided the labor movement, with the United Automobile Workers breaking with other unions and offering decisive support, and drew criticism from liberal Democrats who said the agreements could cause job losses.
The agreement with Korea is likely to carry a far larger economic impact than those with Colombia and Panama, given their relatively small economies. American heavy equipment firms like Caterpillar, which already exports a substantial amount of machinery to the two countries, stand to benefit, as do agricultural firms. Robert Valencia, a researcher for the Council on Hemispheric Affairs, noted that the agreement is likely to spur infrastructure development that would encourage U.S. investment.
Eventually, the Colombian government will soon realize that as the Free Trade Agreement will enter in full swing, it'll be paramount to overhaul its infrastructure such as airports, seaports, railroads, and highway gridlock so that imports and exports can be transported and shipped at a lower cost, which will in turn spur competitiveness among other industries, Valencia wrote in an email. In order for this to happen, Colombia will have to rely upon technology and cutting-edge engines to carry out these projects, and these goods and services can be provided by U.S. companies.
An analysis by the International Trade Commission estimated that the pact with South Korea will boost Gross Domestic Product by about $10-$12 billion while having a small to negligible impact on employment, and Obama has praised the agreement as a job creator.
But critics argue that the gains U.S. companies register in exports will be eclipsed by an increase in imports, something that could exacerbate a trade imbalance and lead to the elimination of American jobs. Electronic equipment companies and the already beleaguered textile and garment manufacturing industry are expected to suffer job losses.
What the administration did as well as a lot folks in the Senate and some of the corporate lobby folks was the look at just the export side of the equation and say they expect a certain number of jobs to be created for every increase in exports, said Todd Tucker, research director of Public Citizen's Global Trade Watch. If you did a little more honest accounting and looked at the import side you would have to conclude there would be a net loss of jobs.
Conversely, the agricultural industry stands to benefit - Korea was the fifth largest recipient of U.S. agricultural imports in 2010, purchasing some $5.3 billion worth. The possibility of the South Korean agricultural sector being overwhelmed by American goods has prompted furious protests in South Korea and ignited debate in the legislature, where some lawmakers are trying to block the agreement from taking effect.
It is less clear how the automotive industry will fare. The United Automobile Workers Union lent its support to the trade agreements after securing a measure to leave in place tariffs intended to guard against imported Korean cars inundating the market. But there is scant demand for American cars in South Korea, where smaller and more fuel-efficient Korean cars predominate, and some observers believe the trade agreement could worsen an already massive trade imbalance that saw South Korea exporting nearly 500,000 cars to the U.S. in 2010, with just 7,500 American-made vehicles flowing the other way.
There's a lot of symbolism which far exceeds the substance, the reason being that at this stage the U.S. does not make very many auto products which are competitive in the Korean market, said Gary Hufbauer, a senior researcher at the Peterson Institute for International Economics. I think the payoff to the auto industry is if our industry really comes up with quite nifty projects, for example in the green energy or hybrid arena, there's where I can see the big payoff down the line.
The deal could also ease restrictions on financial services. For example, South Korea instituted stringent capital controls to help stabilize its economy, but under the agreement that mechanism is banned.
The bigger impact is not so much what will happen on cross border financial services flows but more what kinds of regulations will be removed, regulations that quite frankly have little to do with trade, Tucker said. That may serve Wall Street in the short term but it's not clear those serve either economy's long-term interests.