In 2012, despite the fact that South Korea is a currency manipulating country (see Bernanke's Figure 8), Congress passed and President Obama signed KORUS, a so-called "free trade agreement" with South Korea. Ever since it went into effect in March 2012, U.S. net exports (exports minus imports) of goods to South Korea have fallen as shown by the following graph:
From the year ending February 2012 to the year ending February 2013, US net exports of goods to South Korea fell from a negative $13.2 billion to a negative $18.1 billion. Assuming that each American manufacturing worker produces about $100,000 of product, American manufacturing workers have lost about 50,000 jobs, so far, as a result of KORUS.
The loss of manufacturing jobs could, conceivably, be overcome by gains in jobs in the service sector. However, net American service exports to South Korea have been relatively stagnant. There was only a $0.5 billion increase in U.S. net exports of services to South Korea from 2011 to 2012.
The United States is on track toward achieving the loss of 159,000 jobs to KORUS that was predicted by the Economic Policy Institute. Sam Williford wrote on March 21, 2011 (NAFTA Is Proof that KORUS Will Be Disastrous):
Projections from the U.S. International Trade Commission show no net gain in jobs from KORUS, while the Economic Policy Institute projects a loss of 159,000 jobs during the first seven years of the deal. Most economists also expect the deal to further widen America's trade deficit with South Korea. Faced with such overwhelming evidence, why has the Obama administration pushed so hard for this deal?
Encouraged by his success with KORUS, President Obama is now negotiating "free trade" agreements with Europe and Japan. University of Maryland economist Peter Morici writes (Trade pacts with Europe and Japan will boost US unemployment):
President Obama is betting a lot on free trade. Recently, he has agreed to open talks for mega trade deals with the European Union and Japan in hopes of jump-starting growth in both places and boosting US exports and jobs. However, far from an elixir, free trade has been a rock on the back of the US economy and American workers, and the Obama strategy will only make things worse.
Morici points out that free trade pacts which reduce tariffs but let our trading partners manipulate exchange rates are simply foolish, writing:
The Administration continues to negotiate trade pacts that open US markets to foreign competition but lack specific rules and penalties to address currency manipulation. Until an American president is willing to ensure free trade in goods is matched by free trade in currencies, the US economy will endure anemic growth and workers will suffer high unemployment and low wages.
On June 29 2011, I argued that any trade agreements negotiated by the United States should include a clause such that any country running both an overall trade deficit and a bilateral trade deficit be permitted to invoke a trade balancing across-the-board tariff (i.e., a scaled tariff) designed to take in half of the bilateral deficit as revenue. I even included the exact wording that such a clause should take.
Such a clause would have turned KORUS into a mutually beneficial trade agreement. When trade is balanced, both countries trade products that they can produce with comparative advantage and get products that the other can produce with comparative advantage. But when a "free trade" pact permits non-tariff manipulations that imbalance trade, the U.S. trades industries and jobs and gets consumer goods and debt.