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Analysts split over whether trade pacts boost U.S. economy

By Catherine E. Shoichet, CNN
updated 10:48 PM EDT, Thu October 13, 2011
Longshoremen load shipping containers in Florida on Wednesday as lawmakers passed three free-trade agreements.
Longshoremen load shipping containers in Florida on Wednesday as lawmakers passed three free-trade agreements.
STORY HIGHLIGHTS
  • Analyst: New free-trade deals 'send a wide signal' to the world
  • Experts are divided over whether jobs will be created
  • Some groups say the agreements will result in job loss
  • Analysts say such deals allow the United States to compete

(CNN) -- Supporters of free-trade agreements approved this week by U.S. lawmakers predicted Thursday that the accords will increase exports and create jobs, but analysts are split over how much the new measures will boost the flagging U.S. economy.

Whatever the long-term economic impact of the deals with South Korea, Colombia and Panama, they marked a significant political victory at home and abroad for President Barack Obama, who has had difficulty finding common ground with Congress.

"It means an awful lot in terms of how foreign countries view the United States and our ability to follow through on commitments," said Meredith Broadbent, a senior adviser at the Center for Strategic and International Studies in Washington.

The agreements, first negotiated during President George W. Bush's administration, were in limbo for years. Congress cleared the long-stalled deals Wednesday, spurred by South Korean President Lee Myung-bak's visit to Washington.

"That sends a wide signal to the rest of the world that the United States is still capable and willing to negotiate free-trade deals," said Joshua Meltzer, a fellow in global economy and development at the Brookings Institution.

Agreements a 'key part' of U.S. recovery?

The White House, Republicans and big business groups call the deals job creators, and say they will spur $13 billion in new exports from the United States each year. Obama said Thursday that the South Korea agreement alone would help create 70,000 jobs in the United States.

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"Those are remarkable figures. ... This is a key part of the recovery of the United States," John Park, who directs Northeast Asia projects at the U.S. Institute of Peace, told CNN Thursday.

Broadbent said the impact will be gradual, but "trade will grow, jobs will be created and also foreign relations will be strengthened."

"This is one thing that's positive, and it's happening at a time when the other methods of job creation haven't yielded much of a result," she said.

But other experts offered more modest predictions about what the measures' impact.

"The administration will say that it supports jobs, because it will prevent us from losing jobs. It will keep up our exports and therefore we won't lose sales," said Douglas Irwin, a professor of economics at Dartmouth University. "We might gain some additional sales because of the tariffs going down, but I think the magnitude is very small and it's not anywhere near large enough to put a dent in the unemployment rate."

Expecting a big economic impact or major job growth is "not realistic," said Edward Alden, a senior fellow at the Council on Foreign Relations.

"We're not going to see big short-term changes. ... It's been a historic problem with discussions in the U.S. about trade agreements, with big promises made that generally just have not played out," said Alden, who directed the council's recent report on U.S. trade and investment policy.

That doesn't mean the trade agreements weren't an important step, he said.

South Korea had "shown that it was quite prepared to move forward without the United States" and made free-trade agreements with other nations, he said.

"The world doesn't need the United States the way it used to. And if we as a country are not out there actively promoting ourselves as an investment destination and actively negotiating new trade opportunities for U.S.-based companies, then we're going to get left behind," Alden said. "We're not the indispensable nation economically anymore."

Changes 'little by little'

Each free trade agreement will have a different impact, said Arturo Porzecanski, distinguished economist-in-residence at American University's School of International Service.

"In the case of Panama and Colombia, these countries are not big enough and they don't buy enough of our things to make a visible difference. If there is any favorable impact on U.S. jobs, you'll need a magnifying glass to find them," he said. "But that's OK. You ask anybody who wants to sell some wheat or set up a law firm or sell DVDs. ... That's how a business is built, little by little."

The South Korea deal, hailed as the largest U.S. free trade agreement since lawmakers approved the North American Free Trade Agreement in 1994, could make a larger dent, he said, because of the nation's wealth.

"The fact that they'll be buying many more farm goods than before and the fact that they'll be buying autos that they never bought before is significant," he said.

Analysts said consumers in the United States will not notice significant changes, because tariffs on imports from Colombia, Panama and South Korea are already low.

"It's not like all of a sudden you're going to see the price of coffee plummeting or the variety of flowers wildly expanding," Porzecanski said.

"You're mostly going to see it on the export side. Farmers (and) people in service industries will be able to get a lot more business done in those countries than they could before with a lot less red tape and fewer taxes."

Mixed reactions at home and abroad

South Korean, Colombian and Panamanian leaders praised the long-awaited agreements.

Analysts said the greatest benefits will come for buyers there, thanks to reduced tariffs on American goods.

"As soon as the trade agreement goes into effect the greatest winner in all of this is the consumer, the consumer in the United States and the consumer in Colombia," said Camilo Herrera, president of Colombia's Raddar marketing research firm.

Panamanian President Ricardo Martinelli called the agreement "an achievement of all Panamanians." His office released a statement calling the free trade deal a "key piece" of the nation's economic policy.

Speaking Thursday in Washington, South Korea's president described the measure as "a win for both of our countries."

"This agreement will create more jobs. ... It will become a new engine of growth that will propel our economies forward," Lee said.

But reactions to the measures weren't entirely positive.

Labor, human rights and several consumer groups have opposed the agreements.

The AFL-CIO decried the deals in a statement Wednesday, describing them as "the wrong medicine at the wrong time" and arguing that the agreement with South Korea alone could cost nearly 160,000 American jobs.

Opposition lawmakers in Colombia said the agreement would be disastrous for the nation's farmers.

"Rice is going to be liquidated...very large losses are coming in the production of meats -- beef, chicken, pork -- and fruits. And meanwhile, what Colombia is going to sell in the U.S. market is practically the same as today. There's not going to be any increase in exports," Sen. Jorge Enrique Robledo said.

Looking ahead to more deals

Supporters of the agreements note that they were reshaped under the Obama administration to address some concerns, with provisions added dealing with auto tariffs in South Korea, labor rights guarantees from Colombia and assurances about tax transparency in Panama.

Even though delayed negotiations drew widespread criticism from free-trade advocates eager to push the deals forward, Broadbent said, "now I think we can put the struggle behind us and look to the fact that we've cemented very strong relationships with important countries."

Analysts said Wednesday's vote could help U.S. negotiators trying to work out future free-trade deals, including the Trans-Pacific Partnership, which includes Asian and Latin American countries.

"This is a good signal that the United States wants to play a leadership role in shaping the rules on trade and investment in the region," Meltzer said.

The deals could play a key role next month, when the United States hosts the Asia-Pacific Economic Cooperation meeting, analysts said.

"Now you'll see Obama traveling to a meeting with those trading partners in the first part of November, where his hand will be measurably strengthened by the ability to pass these trade agreements," Broadbent said.

CNNMoney's Jennifer Liberto and journalist Fernando Ramos contributed to this report.

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