 Free trade was a hot-button issue leading up to the 2016 election. Trans-Pacific is going to destroy your auto industry in Ohio. I did hope that the TPP negotiated by this administration would put to rest a lot of the concerns that many people have expressed about trade agreements. And with the 2020 election just on the horizon, the issue is sure to rear its face again. Donald Trump regularly claims that. Our country doesn't win anymore. We used to win. We don't win anymore. We lose on trade. Look at our country. We don't win anymore. We can't win on trade. We don't fight to win anymore. We don't win anymore. Last year, the U.S. sold $1.5 trillion worth of American goods abroad, but imported $2.2 trillion, a trade deficit of more than $700 billion. But this raises an important question. Is our large trade imbalance a result of too many free trade agreements or too few? And does the trade deficit even matter? Don't forget to subscribe so you never miss an upload and let's jump in. By definition, free trade agreements level the playing field. When they're not in place, countries often tilt that balance against U.S. producers through tariffs and other barriers to trade. First off, let's look at the facts. In 2019, the U.S. had free trade agreements with 20 countries that collectively bought almost half of all U.S. exports. And the U.S. ran a trade surplus with 14 of those 20 countries. On the whole, U.S. trade with the 20 free trade nations was relatively balanced, with $710 billion in exports and $774 billion in imports. In contrast, trade with the other 175 nations who we don't have a free trade agreement with were grossly unbalanced. $792 billion in exports compared to $1.5 trillion in imports. That means 91% of our trade deficit comes from countries with whom we don't have an FTA, like China and Japan. This isn't to say that if we made free trade agreements with all those 175 countries, then we'd suddenly be running a trade surplus across the board. The U.S. trade deficit with China is just over $400 billion. And if we were to sign a free trade agreement, that wouldn't suddenly reverse. Factories are already located in China and the cost of labor is significantly cheaper. But what this does show is that the existing free trade agreements aren't robbing the U.S. of trade. And even more than that, history shows that the balance of trade has generally swung in the U.S.'s favor after implementation of a free trade agreement. In 2003, the year before the U.S. Chile FTA went into effect, the U.S. exported $4 billion worth of goods to Chile and imported $5 billion from it. Last year, more than a decade after the free trade agreement was put in place, the U.S. exported $15 billion to Chile while importing $9 billion. A small trade deficit before the FTA swung to a large surplus today. And Chile isn't the exception, but the usual trend. In the last three decades, after signing an FTA, the U.S.'s trade surplus increased 70% of the time. Of course, there are exceptions, most notably with Mexico, our largest free trade partner. But trade deficits and surpluses aren't the end-all be-all. Trade isn't a zero-sum game of winners and losers. Trade creates wealth by allowing nations to specialize in what they do best and obtain from others where they do worse. The U.S. has lost a lot of jobs overseas in recent years. In the last two decades, NAFTA, the North American Free Trade Agreement, cost the U.S. more than half a million jobs to Mexico alone. This is the biggest impact free trade has cost the U.S. But it's important to realize two things. The first, by and large, the jobs lost as a result of NAFTA were low-paying jobs that we didn't really want. And the second, the vast majority of those jobs would have been lost with or without NAFTA. They may have just gone to other countries outside the continent. On the other side, because of FTAs like NAFTA, we've been able to buy most things from much cheaper. For example, the $100 billion that we spent on food in 1960 amounted to 20% of U.S. GDP at the time. But the $1.5 trillion we spent today on food is only about 8% of everything we make. And included in that is an additional $300 billion for food processing that is paid for today that was once done primarily by women in the household. As we spend less on food as a percentage of our GDP over time, that shows us that the comparative cost of that food has been going down. On the whole, accounting for inflation, medium family real income is 29% higher today thanks to international trades effect on lowering prices. But just because America is better on the whole doesn't mean those directly displaced by job losses are really better off. As jobs in one sector of the economy have dwindled, jobs in others have grown. But the skill sets for these jobs often don't overlap. So it's not as if these workers can simply transition from a shrinking field to a growing one. A manufacturing worker probably won't easily be able to move into the growing computer science field. At least not without first going back to school and learning some new skills. But research points to a somewhat surprising fact. When the economy is doing well, for people that lost their job due to free trade agreements, their average income over the next 20 years turns out to only be about 10% lower than people not caught in the layoffs. Obviously, 10% isn't nothing, but it's not as big of a drop as you'd expect. These shows that you don't go from a $35 an hour manufacturing job, permanently down to a $9 an hour McDonald's job, but instead find other employment opportunities. In short, those whose jobs vanish usually find something else to do that doesn't involve too much downward mobility, whether in income or status. All this ignores other beneficial factors from free trade agreements, like how a stronger and more prosperous Mexico on our southern border props up the US's position as a global superpower. But what if the US increased tariffs on foreign countries to protect American jobs? Well, this would lead to retaliatory tariffs and increasing prices. When companies have to pay tariffs, they turn around and pass that new cost on to the consumer. The China-US trade war from 2019 cost the average US household $500. In the short term, we see these higher prices, and in the long run, protectionist trade policies lead to less competition. For example, India and many countries in Africa have had high tariffs on foreign cars for decades. Domestic producers are almost entirely protected from international trade, and so they don't have an incentive to develop and improve, and so they've continued to produce terrible cars. These policies are reducing competitiveness and slowing the spread of world-class practices in the value chain. The end result, consumers in those countries get stuck with worse cars as they have no viable alternatives. To put this problem in context, India is the world's sixth largest automobile producer by volume, but it owns less than 1% of the global export market. The average auto firm in India exported only 5% of its total sales compared to 16% in China. All this means is that while India's automobile industry is protected in India, the industry is falling so far behind that the rest of the world won't buy their cars, and so both the Indian consumer and the Indian economy lose out in the long run. This was the case for the rest of the Indian market in the 70s, when it was swamped with import tariffs, designed to protect the whole of India's fledgling economy. But the country only started having a successful, fast-growing economy in the early 90s after the government loosened these protectionist policies. There are risks to free trade agreements, like losing industries critical to national security, like steel used to produce tanks, or what the recent COVID outbreak has highlighted, the industries that produce vital medicines. But on the whole, free trade agreements have been an incredible benefit to the US. While they've lost some US jobs, those jobs would've been lost anyways, and those displaced workers have largely landed back on their feet. And on the whole, free trade agreements have increased net exports, and made most goods cheaper. So despite all the heat free trade agreements get from politicians, they've been overwhelmingly positive for the country. That's it for this episode of Everything Science. If you liked the video, consider watching the one recommended in the outro. 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