Updated April 18, 2018
International Trade Agreements and Job Estimates
Overview
The ITA estimated that in 2016, U.S. exports of goods and
The Obama Administration engaged in negotiations on two
services supported 10.7 million jobs – 6.3 million in the
mega-regional free trade agreements (FTAs): the Trans-
goods producing sector and 4.4 million in services, as
Pacific Partnership (TPP) among the United States and
indicated in Figure 1.
eleven other Asia-Pacific countries and the U.S.-European
Transatlantic Trade and Investment Partnership (T-TIP).
Figure 1. Jobs Supported by Exports in the Goods and
TPP was concluded and signed, but required implementing
Services Sectors of the U.S. Economy, 1998-2016
legislation to become effective, while T-TIP negotiations
(in millions of jobs)
were not concluded. Upon taking office, the Trump
Administration withdraw from the TPP, but may be
reconsidering under different negotiating objectives.
Discussions on TPP, T-TIP and other FTAs, including
during the recent election, have focused attention on
quantifying the impact of trade agreements on jobs in the
U.S. economy.
Economists and others often use sophisticated economic
models to estimate the economic impact of trade
agreements on the economy, particularly the impact on jobs
and wages. The International Trade Commission (ITC), for
instance, provides estimates of the impact of FTAs on the
U.S. economy. Limitations of data and important theoretical
and practical issues make it difficult to derive precise
Source: International Trade Administration
estimates of the impact of a particular trade agreement on
the U.S. economy. Such models use a number of
The ITA also projected that on average one billion dollars
assumptions that are necessary to derive the results, but
of merchandise goods exports supported 5,223 jobs, and
such assumptions reduce the reliability of the estimates. In
one billion dollars of services exports supported 6,706 jobs,
addition, the economy as a whole is subject to a broad range
or an average of 5,744 jobs were supported by goods and
of events, often unforeseen, that cannot be modeled ahead
services exports combined. Expressed differently, $191,461
of time in generating trade estimates, but may affect
in merchandise goods exports, $149,120 in services exports,
economic performance, including job creation and job
or an average of $174,095 in goods and services exports,
losses, in ways that may outweigh the impact of free trade
supported one job in each respective sector.
agreements.
ITA also estimated that jobs associated with international
Estimating Employment Related to
trade, especially export-intensive manufacturing industries,
Trade
earn 18% more, on average, than comparable workers in
Most trade models do not estimate the number of jobs that
other manufacturing industries, because industries with
could be associated with a particular trade agreement, in
greater access to international markets invest heavily in
part because they do not contain the type of microeconomic
technology and capital in those areas where the United
data that would be required to make such an estimate. As a
States has an international comparative advantage. While
result, some groups have attempted to use proxy estimators.
views differ on this subject, others conclude that a number
Some estimates of the relationship between trade and
of factors could account for the observed relationships
employment have used data developed by the Department
between trade and worker incomes, which make it difficult
of Commerce’s International Trade Administration (ITA).
to estimate a direct cause and effect relationship.
These estimates use input-output data to estimate the
average number of jobs that are supported (not created) by
Trade Deficits and Job Losses
exports in the U.S. economy based on several factors: the
Some groups have equated bilateral trade deficits with a
average relationships between the value of goods and
loss of employment. Most economists, however, argue that
services in the economy relative to the average number of
equating a trade deficit, whether on a bilateral basis or
jobs that are required to produce that output for each
overall, with a specific amount of unemployment or job
industry, the value of inputs used in their production, and
losses in the economy is questionable. In some cases, both
the value of transportation and other marketing services
opponents and proponents of trade and trade agreements
required to bring goods and services to buyers. The agency
have used the methodology developed by the ITA on
did not develop a similar methodology to estimate potential
exports and jobs supported in the economy to estimate the
job losses due to imports.
employment effects of FTAs. Sometimes, these data have
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International Trade Agreements and Job Estimates
been used in reverse to argue that if a certain number of
The ITA also indicated that, “The averages are not proxies
jobs were supported by a billion dollars of exports, then that
because the number of jobs supported by exports usually
same number could be used to argue that a certain number
does not change at the same rate as export value. The rate is
of jobs would be “lost” by a billion dollars of imports, so
not the same because other factors, such as prices, resource
that any net increase in imports associated with a trade
utilization, business practices, and productivity, do not
agreement would necessarily result in a loss of employment
usually change at the same rate. In addition, the material
for the economy. This approach also has been used to argue
and service inputs and the labor and capital inputs differ
that the U.S. trade deficit implies a net loss of jobs in the
significantly across types of exports. For example, the labor
economy.
requirements for an exported aircraft are significantly
different from those of an exported agricultural product or
The ITA’s methodology, however, is unique to estimating a
an educational service.”
static number of jobs supported (not created) by exports.
The composition of U.S. imports is fundamentally different
Ideally, estimates of changes in jobs that arise from changes
from that of U.S. exports. While some imports and exports
in trade flows that are associated with changes in tariff
represent clearly substitutable items, which may adversely
reductions would be derived using figures that reflect actual
affect U.S. jobs, other imports represent inputs to further
changes in employment (based on the mix of goods traded)
processing, or are items that either are not available or are
that would occur at the margin as a result of changes in the
not fully available in the economy. In addition, import-
volume of goods traded. According to the ITA, though,
competing industries likely do not have the same mix of
such data do not exist. The only data that are available
capital and labor in their production processes as do export-
reflect the estimated average number of jobs supported
oriented industries so that demands on capital and labor
across the U.S. economy by a given level of exports.
markets could vary substantially across industrial sectors.
During periods of slack business activity, increased output,
While some job losses associated with imports can be
such as exports, would tend to increase employment, lower
highly concentrated, imports also support a broad range of
unemployment, and increase labor force participation.
widely-dispersed service-sector jobs, including
Conversely, during periods of high business activity, when
transportation, sales, finance, marketing, insurance, and
industries operate at or near full capacity and employment,
accounting.
increased output, including output for exports, would tend
to raise employment less—if at all—and instead likely
ITA Clarification and Disclaimer
would mainly shift employment to industries that pay
ITA has issued various statements indicating that using the
higher wages.
data on jobs supported by exports to estimate any
relationship between imports and jobs is not appropriate. As
Issues for Congress
ITA has indicated, the employment estimate is a static
Trade agreements often are controversial for a number of
relationship, or it reflects a relationship at a point in time,
reasons, including the estimated impact they might have on
and is not a multiplier and should not be used to estimate
jobs in the economy. In examining the impact of trade
changes in jobs that are associated with changes in exports
agreements on the U.S. economy, Congress may:
or imports in a multiplier fashion to estimate the number of
U.S. jobs that have been lost or created as a result of trade
Assess the current state of data on trade and trade-
agreements.
related employment to determine what if any action may
be taken to improve such data and the costs and benefits
In addition, ITA’s estimates relate to the average number of
involved in doing so.
jobs supported by exports across a broad section of the
economy, which is not the same as estimating the number
Assess the current state of data to determine if such data
of jobs that would be added or lost as a result of a trade
can be used to provide more informed estimates of the
agreement. Such an estimate would need to focus on
potential long-run impact on the economy as a whole
estimating the change in the composition of employment
and on particular sectors within the economy of a trade
that would be associated with a change in trade as a result
agreement.
of a trade agreement. Also, most trade agreements
incorporate provisions governing trade in services,
Assess the role that such other factors as education, job
investment, nontariff barriers, and a broad range of other
training, and adjustment assistance programs have in
trade-related issues that are not reflected in the ITA
positioning the economy to be competitive overall and
estimates.
in adjusting in a timely fashion to shifting trade trends.
ITA argues that its estimate of the number of jobs supported
More Information
by exports should not be used with projected changes in
For more information see CRS Report R44717,
trade to estimate potential employment effects from trade
International Trade and Finance: Overview and Issues for
agreements. It says: “Averages derived from IO [input-
the 115th Congress, coordinated by Mary A. Irace and
output] analysis should not be used as proxies for change.
Rebecca M. Nelson.
They should not be used to estimate the net change in
employment that might be supported by increases or
James K. Jackson, Specialist in International Trade and
decreases in total exports, in the exports of selected
Finance
products, or in the exports to selected countries or regions.”
IF10161
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International Trade Agreements and Job Estimates
Disclaimer
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