Robert E. Scott Director 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 Conference Tuesday, 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)”Lori Wallach, Public Citizen 2013

Effects of Trade and Investment Deals 1.The Deals a.NAFTA b.China’s entry into the WTO c.KORUS d.Trans-Pacific Partnership (TTP) e.Transatlantic Trade and Investment Partnership (T-TIP) 2.The issues a.Foreign direct investment (FDI), outsourcing & trade b.Trade, jobs, wages and inequality c.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

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

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 3 rd 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. costing 2.7 million U.S. jobs

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

Globalization & the distribution of income Using standard models to benchmark the cost of globalization for American workers without a college degree (Bivens 2013)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*

“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*

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, 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

Net trade balances of U.S., foreign and total MNCs* trade balances as shares of U.S. trade balance, 2005– 2011

Where have 5.6 million jobs gone?

The end * * * (Supplemental data continues, below)

Foreign Direct Investment in China,