The U.S.-Korea Trade Deal: No Time Soon

August 03, 2009

Dean Baker
The Hankyoreh (South Korea), August 3, 2009

See article on original website (Korean)

Those expecting the U.S. Congress to ratify the trade pact with Korea any time soon are going to be badly disappointed. The trade pact is not even on the political radar screen at the moment and the Obama administration would like to keep it that way, at least until after the 2010 election.

Trade agreements have a very bad public image in the United States. There is good cause for this. The United States has pursued a policy of selective protectionism, the purpose of which has been to redistribute income from the less educated sector of the workforce to the most highly educated sectors. In addition, its trade policy has helped enhance the profits of the pharmaceutical, entertainment, and software industries by forcing our trading partners to provide stronger protection for patents and copyrights.

Three decades of this one-sided trade policy has badly hurt the living standards of most of the workforce. While productivity has nearly doubled since 1980, the real wage for most of the workforce has increased by less than 10 percent. The big gainers have been highly educated professionals like doctors and lawyers. Almost everyone else has been among the losers.

The public blames trade agreements like the North America Free Trade Agreement, which was approved by Congress in 1993, for much of their trouble. They see manufacturing jobs being moved overseas at a rapid pace and rightly recognize this as a source of downward pressure on their wages.

Of course trade policy did not have to be designed to hurt less educated workers. If the United States had signed trade deals that facilitated the entry of foreign doctors, lawyers, and other professionals into the United States, the potential gains would be enormous. If enough doctors entered the U.S. to lower wages to European levels, it would save U.S. consumers more than $80 billion a year in health care costs. Complete free trade in highly paid professional services could save the country several hundred billion dollars annually.

However, trade agreements did not go this route. Instead, they were designed to redistribute income upward. As a result, trade deals are extremely unpopular and therefore Congress will be very reluctant to move on ratifying any trade pact, especially with the unemployment rate approaching a post-World War II peak.

Even trade deals that would have almost no visible consequences in the United States, such as the Central America Free Trade Agreement (CAFTA), have aroused huge amounts of opposition. The CAFTA countries together have a GDP that is a bit more than 1 percent of U.S. GDP. Furthermore, most of their exports already enter the United States tariff free. Yet, the Bush administration had to buy votes in Congress with pet projects in order to get the deal passed.

While the agreement with South Korea will also have relatively little impact on the U.S. economy (most Korean goods enter the country with few restrictions), it will certainly create far more displacement than CAFTA. Therefore, it would be a very hot political issue if the Obama administration were to seek congressional approval.

The bill also has relatively few big gainers if it were to pass and therefore enjoys little active lobbying support. The pharmaceutical industry certainly hopes to be able to profit by charging Koreans more for drugs, but this is not a big item on their agenda when national health care reform is being debated in Congress. Similarly, the financial services industry hopes to make more inroads into the Korean market as a result of the agreement, but they are both trying to secure more money in bailouts and stave off serious regulation.

Economists freely lie to push trade deals, but the actors involved generally know better. So, one of the lines that is supposed to make the Korean trade deal advantageous to the U.S. is that our beef producers will be able to export more beef to Korea. However, economists who know economics know that this is a joke.

There is a world price for beef. Suppose that the U.S. doesn’t ratify the trade deal and instead Argentinean producers capture the Korean market. This means that the countries that would have otherwise imported Argentinean beef will instead have to buy beef from U.S. producers. The impact of whether or not the Korean market is more open to U.S. beef on U.S. producers is almost zero. The market for beef sales pitch may fool business reporters, but it is unlikely to create a constituency for the trade deal among beef producers.

The Obama administration probably would like to push the Korean trade deal through Congress, but it is already fighting on health care reform, financial regulation, and global warming legislation. In addition, they know that the economy badly needs another round of stimulus.

This means that it is almost inconceivable that the bill will come to a vote in 2009.  And 2010 is an election year. So, those pushing for U.S. ratification of the U.S.-Korea trade deal may want to mark 2011 on their calendars. It won’t happen any time sooner. 

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, “Beat the Press,” where he discusses the media’s coverage of economic issues.

Support Cepr


If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news