Why Free Trade With South Korea Might Help

Some jobs may move overseas, but the new pact provides a big opportunity for U.S. exports

600 trade REUTERS Mike Segar.jpg

After years of delay, Congress finally passed free trade agreements with South Korea, Panama, and Colombia. President Obama is eager to approve the deals, as he believes they will help to create jobs in the U.S. But some unions aren't so sure. They fear that U.S. firms will just ship more jobs overseas now that they can take advantage of lower labor costs in those nations. Who's right here? Let's consider South Korea, in particular, since it's arguably the most significant and because better statistics are available on U.S. trade with South Korea.

South Korea's Huge Market

Why could free trade with South Korea help? It's a pretty big market -- the fourth largest economy in Asia. The free trade agreement will make U.S. exports more attractive to around 50 million consumers.

In fact, the U.S. exports to South Korea have already been seeing pretty robust growth in recent years. Here's a chart:

exports south korea 2011-Q2.png

The recession makes this chart a bit ugly. But looking at where exports peaked in the second quarter of 2008 through the second quarter of 2011, they're up about 19%. Over the same period U.S. global exports are only up 9%. So South Korea has already been a rapidly expanding market for U.S. goods and services. This free trade agreement should make that growth even steeper.

But What About Jobs Going Overseas?

Of course, exports are only half the story -- imports should also rise. In particular, this could cost U.S. jobs in two ways: some Korean goods will be relatively cheaper than those produced in the U.S., and some corporations might ship jobs overseas.

Unfortunately, some U.S. jobs will almost certainly be lost due to the trade agreement. But the question is whether the jobs created will outweigh the number lost. This depends in part on which industries win and which lose. According to a Washington Post article, beef, dairy, pork, and poultry products, chemicals, plastics, and financial services should benefit. Meanwhile, textiles, steel, machined parts, and semiconductors are some that may suffer.

Some industries benefitting while others suffer is a normal symptom of trade. It pushes nations to specialize. Products and services that one nation can produce with greater expertise or at a lower cost are sold to another. So even if this does cost some short-run jobs, it should put the U.S. in a better long-term position by refining its focus on the sectors where it can best compete in the global market. And with American consumers getting cheaper South Korean products due to the trade agreement, they'll have more money left over to spend on other products, some of which will be produced in the U.S.

But what about those workers who lose their jobs? The trade agreements consider them too. It renews the Trade Adjustment Assistance Program. This gives workers who are laid off due to free-trade deals job retraining and temporary income support. So even though some jobs will be lost, those workers may be put in a better position to compete in more sustainable careers.

Not a Silver Bullet

Yet we shouldn't kid ourselves: even if these trade agreements do end up adding jobs, these they aren't likely to fix the U.S. unemployment problem. They'll add maybe a few hundred thousands net jobs over the next few years. With something like 15 million Americans unemployed, they aren't bound to have a huge impact.

But then, neither would anything else the government could do for relatively cheap. At this point, any action that's conductive to job creation and won't cost taxpayers much is a good step. No single action or set of actions by the government would suddenly create millions of jobs. So for now, we'll have to take what we can get.

Image Credit: REUTERS/Mike Segar

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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