Global Economy and the USA

Trading Agreements and their Impacts

Trading agreements are formed when two or more countries agree on appropriate trade terms. These agreements are in charge of defining the tariffs and charges imposed on both imports and exports. There are three sorts of trade agreements that can arise between nations: unilateral, bilateral, and multilateral. The Transatlantic Trade and Investment Partnership (TTIP) is America's largest bilateral agreement, while the Trans-Pacific Partnership (TPP) and North American Free Trade Agreements (NAFTA) are the largest multilateral agreements. Over the years, the Free Trade Agreements (FTAs) have proven to be efficient in opening up foreign markets to all the exporters in the US as they aid in reducing existing barriers. Moreover, they have also aided in creating not only a stable but also a transparent trading and investment environment. However, despite these advantages, the US should not enter into Free Trade Agreements such as Nafta, TPP, and TTIP with other countries.

Effects of Trade Agreements on Employment

For decades, the US has consistently run huge trade deficits; as compared to other developed countries and has also suffered a higher number of trade-related employment losses. While the growing exports due to free trade agreements in the US have continued to support domestic employment, the growing imports not only reduce the overall domestic output but also employment opportunities for millions of US citizens. An example is the Permanent Normal Trade Relations (PNTR) granted to China by the US, from 1965 to 2000, the US manufacturing employment dropped, where approximately 18 million workers lost their jobs (Pierce, 1). By eliminating sudden spikes on importations for the Chinese, PNTR agreement affected the US employment through several channels or rather mechanisms. These included encouraging most of the US companies to source their final goods as well as inputs from the Chinese rather than the available domestic suppliers, persuasion of the Chinese firms to expand further into the US market and encouragement of the US firms to adopt new labor-intensive production techniques as a result of technology transfer. Other techniques included encouraging manufacturing companies to shift all or part of their operations offshore (Pierce, 26).

Concerns about Trade Agreements and Wages

Views on the effects of trade agreements on wages and employment somewhat turned less sanguine during the 1990s as employment and manufacturing employment continued to plunge in the US. This was due to agreements such as the North American Free Trade Agreement which resulted in the loss of employment for many American citizens and has since been heavily criticized; that it sent all the jobs to Mexico. As from 2001 to 2007 manufacturing employment further plunged by 3.2 million jobs (Pierce, 8).

The Trade Deficit and Current Agreements

Meanwhile, the US already has huge trade deficits with various countries in the proposed Trans-Pacific Partnership which cost approximately 2 million jobs in the US in 2015; hence, the trade deficit would ultimately worsen in the event the pact is enacted with other nations.

Negative Implications of Trade Agreements

Loss of employment opportunities for the American citizens is nothing but a tip of the iceberg of the free trade agreement's broader effects on the US economy. Through extensive research studies, mainstream economics and authors such as John Bivens and Autor et al., in their books, "Everybody Wins, Except for Most of Us" and "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade" respectively, portray the negative implications of Trade Agreements. They show that; while most of the American citizens have to a great extent benefited from what can be termed as cost-saving "efficiency gains due to increased global trading activities resulting from free trade agreements, these agreements tend to harm a larger percentage of the working Americans.

Importance of Renegotiation

Concerning this, trade agreements with low-wage nations result in an overall reduction in the median wages for full-time workers that lack a college degree by about $1800 on an annual basis (Autor, Dorn & Hanson, 227). Currently, in the US, approximately two-thirds of the US labor force comprises workers without college degrees; which is roughly 100 million individuals, according to statistics. Thus, trade agreements; amongst them the Trans-Pacific Partnership, are primarily responsible for the transfer of about $180 billion on an annual basis from the low as well as middle-income citizens to the top third and particularly those in the top 10 who form 0.1% of the American population (Bivens, 34). Therefore, engaging in free trade agreement such as NAFTA, TPP, and TTIP with other countries would have negative consequences on the US economy. Furthermore, trade agreements such as the Nafta and TPP are extremely complex legal texts that are aimed at favoring large investors as well as multinational companies. They also expose the American consumers to unsafe imported products and food and empowers some of the large corporations to directly attack the US environmental and health standards while rolling back reforms in Wall Streets.

The Need for Renegotiation

In conclusion, while the US should not continue to enter into free trade agreements with other nations, it should maintain those already in place. This is because they still have some advantages which include, but not limited to, addressing barriers that impede the flow of both services and goods between countries, enhancement of corporation between nations, increased investments and technology transfer. Hence, the US should not withdraw from the already existing agreements as scraping off these agreements can have not only economical but also political implications.

Concerning the already existing FTAs, the U.S. should, however, reset its trade and particularly its international economic relations. Thus, it should renegotiate on the already existing agreements such as the North American Free Trade Agreement putting an end to unfair practices that exist such as currency manipulation by nations such as China and South Korea (Clawson & Morici). Currently, currency manipulation by trading partners particularly China and South Korea has been the single largest cause of the trade-related job losses and the U.S. trade deficits. Therefore, the U.S. should focus on developing a results-based approach to trade agreements and negotiations primarily designed to rebalance trade with its trading partners as well as ensure that all the benefits arising from free trade agreements are broadly shared.

Works Cited

Autor, David H., David Dorn, and Gordon H. Hanson. “The China Shock: Learning From Labor-Market Adjustment to Large Changes in Trade.” Annual Review of Economics 8 (2016): 205-240.

Bivens, Josh. “Everybody Wins, Except for Most of Us: What Economics Teaches About Globalization”. Economic Policy Institute, (2008). Pp. 142

Clawson, C. & Morici, P. “Real Free Trade Means Ending Currency Manipulation”. Retrieved From:

Pierce, Justin R., and Peter K. Schott. “The Surprisingly Swift Decline of US Manufacturing Employment.”  (2016). Pp. 62

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