Robert E. ScottDirector of Trade and Manufacturing Policy

Research Economic Policy Institute

TRADE, JOBS AND U.S. MANUFACTURING

The Effects of U.S. Trade and Investment Deals on Trade, FDI,

Employment, Wages, and the Distribution of Income

IFPTE Legislative ConferenceTuesday, March 25, 2014

What do trade and investment deals do?

• U.S. trade deals, including the WTO agreements, so-called “free-trade agreements” and bilateral investment treaties have resulted in growing U.S. trade deficits with low wage countries like China, Mexico, Malaysia and Vietnam which has cost the United States millions of jobs, most in the manufacturing sector

• U.S. trade deals “facilitate offshoring, ban Buy American provisions and erode manufacturing jobs, utterly contradicting the president’s domestic agenda (Lori Wallach, Public Citizen 2013)”

Effects of Trade and Investment Deals

1. The Dealsa. NAFTAb. China’s entry into the WTOc. KORUSd. Trans-Pacific Partnership (TTP)e. Transatlantic Trade and Investment Partnership (T-TIP)

2. The issuesa. Foreign direct investment (FDI), outsourcing & tradeb. Trade, jobs, wages and inequalityc. Multinational companies (MNCs), trade & jobs

Growth of Foreign Direct Investment has propelled

globalization process• The growth of international capital flows has played a

key role in the globalization process. For the United States:

• Real U.S. GDP growth averaged 3.2% per year between 1980 and 2010

• U.S. – owned assets abroad increased 8.7% per year, nearly three times as fast

• Real Foreign Direct Investment (FDI) by U.S. Multinationals increased 6.1% per year, or twice as fast as GDP

• Real FDI in the U.S. by foreign MNCs has increased 9.5% per year, three times as fast as U.S. GDP

North American Free Trade Agreement: NAFTA

NAFTA took effect January 1, 1994

Effects of NAFTA on: • FDI• Trade• Jobs

NOTE: World Trade Organization (WTO) took effect on January 1, 1995

Foreign direct investment in Mexico tripled after NAFTA, 1980–

2007

1980–1993 1994–20070.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1.0%

2.9%

FDI as

a s

hare

of

gro

ss d

om

est

ic

pro

duct

Source: IMF, International Financial Statistics and World Economic Outlook database, and Eco-nomic Policy Institute.

U.S.-Mexico trade before and after NAFTA, 1989–2013

0

50

100

150

200

250

300

Imports

2013:277.7

Exports

181.7

in b

illio

ns

of

U.S

. dolla

rs

Trade bal-ance

96.0

1994: NAFTA en-acted

Source: Economic Policy Institute analysis of U.S. International Trade Commission Trade Dataweb

China’s Entry into the WTO: 2001

China entered the World Trade Organization on December 11, 2001

Effects of China trade on: • FDI• MNCs• Trade• Jobs• Wages & inequality

China in the WTO: FDI, MNCs, U.S. trade & jobs

• After China entered the WTO in 2001, FDI in China quadrupled between 2004 and 2010 alone, and China became the 3rd largest recipient of FDI in the world

• Foreign invested enterprises in China were responsible for 52.4 percent of China’s exports and 84.1 percent of its trade surplus in 2011

• The U.S. trade deficit with China increased 2.5 times with

China between 2001 and 2011, rising to $301.6 billion and costing 2.7 million U.S. jobs in that period. 76 percent of the jobs lost were in manufacturing.

Highly paid jobs displaced by China trade: Jobs lost to imports paid more than jobs

gained through exports

Less than high school

High school Some college Bachelor's or more Total$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$442

$689

$854

$1,555

$1,022

$446

$694

$803

$1,388

$873

$391

$607$664

$1,157

$791

Imp

ort

s

Ex-

po

rts

No

ntr

ad

ed

Globalization & the distribution of income

Using standard models to benchmark the cost of globalization for American workers without a college

degree (Bivens 2013)• In 2011, trade with low wage countries lowered wages

by 5.5 percent—roughly $1,800 for all full time, full-year workers without a college degree

• 100 million workers without a college degree total transfer of $180 billion

• Explains 90 percent of the rise in college wage premium since 1995

C. U.S.-Korea Free Trade Agreement: KORUS

KORUS took effect March 15, 2012

Effects of KORUS on: • U.S.-Korea trade• U.S. Jobs

U.S.-Korea Trade, 2012–2014*

Apr-2011 to Mar-2012 Apr-2012 to Mar-2013 Apr-2013 to Mar-2014-30

-20

-10

0

10

20

30

40

50

60

70

42.538.9 39.3

57.0 59.362.6

-14.6-20.3

-23.3

in b

illio

ns

of

dolla

rs

*Data are calculated over the periods from April to March. Data for February and March 2014 were es-timated based on the available year-to-date data for April 2013 to January 2014. Source: Economic Policy Institute analysis of U.S. International Trade Commission Trade DataWeb

Ex-

po

rts

Im-

po

rts

Tra

de

B

al.

After KORUS, March 15, 2012

Changes, billions of dollars from 2011/2012–2013/2014: Imports: +$5.6Exports: -3.1Trade Bal.: -8.7

“The definition of insanity…”

What’s next?

d. Trans-Pacific Partnership (TTP) with: Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, and Vietnam + ??? (South Korea, China)e. Transatlantic Trade and Investment Partnership

U.S. trade deficit with TPP countries is large and growing,

2000–2013*

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*0

100

200

300

400

500

600

700

800

900

Exports

588

Imports

2013:848

in b

illio

ns

of

U.S

. dolla

rs

*Annual data for 2013 estimated based on year-to-date trade through November 2013.Source: EPI analysis of U.S. International Trade Commission, Trade DataWeb (2014)

Trade deficit

260

Goals of the TTIP (TAFTA)

Goals of MNCs in the TTIP?

• Wealthy markets of core countries (Germany, France, Italy, Belgium etc.)

or• Labor markets of east (Bulgaria,

Hungary, Poland, Romania, and candidate members (Turkey, Balkans)?

What do Global Corporations do?

1. Trade flows associated with US MNCs investing abroad, 1997-2010

2. Trade flows associated with foreign MNCs investing in the United States.

Net trade balances of U.S. MNCs* direct investment abroad, foreign MNCs direct

investment in U.S., and total MNCs, 1997–2011

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-600

-500

-400

-300

-200

-100

0

100

200

U.S. direct investment

Foreign direct investment in

U.S.

Total MNC trade balance

in b

illio

ns

of

U.S

. dolla

rs

*Multinational companiesSource: Bureau of Economic Analysis Direct Investment and Multinational Companies interactive tables

Net trade balances of U.S., foreign and total MNCs* trade balances as shares of U.S. trade

balance, 2005–2011

2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

17.7% 17.2% 18.1% 19.0%

28.6% 29.8% 28.1%

36.1% 37.3%41.6%

44.8%

55.6%

48.4%46.2%

53.8% 54.5%

59.7%63.8%

84.2%

78.2%74.3%

*Multinational companiesSource: Bureau of Economic Analysis Direct Investment and Multinational Companies interactive tables

U.

S. Fo

r-e

ign

To

tal M

NC

s

Where have 5.6 million jobs gone?

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-600

-500

-400

-300

-200

-100

0

10

11

12

13

14

15

16

17

18

19U.S. manufacturing trade balance and employment,

1989-2012

Tra

de b

ala

nce

($ b

illio

ns)

Em

plo

yment

(mill

ions)

Manufacturing trade bal-ance (left axis)

Manufacturing employ-ment (right axis)

Source: Bureau of Labor Statistics, U.S. international Trade Commission and author's analysis.

The end

* * *

(Supplemental data continues, below)

Foreign Direct Investment in China, 2004-2010