Skip to comments.Why Free Trade Works for America
Posted on 04/22/2007 8:31:38 AM PDT by 1rudeboy
U.S. trade policy and the impact of globalization on America are regularly the subjects of contentious debate both on Capitol Hill and in the media, and 2007 promises more of the same. The free trade argument is played out between those that fear the perceived negative effects of freer trade on their own narrow interests and those that embrace the economic and strategic benefits that open market policies will bring to the economy as a whole. Consequently, in today's policy world, free trade legislation passes on the margin, where every vote is critical. The loss of even a few proponents of freer trade policies could result in a costly shift away from the open market policies that have helped to bolster America's economic growth.
With free trade agreements (FTAs) with Peru, Colombia, Panama, and South Korea needing congressional approval; Trade Adjustment Assistance up for renewal; the struggle to advance multilateral trade talks in the World Trade Organization (WTO); and, critically, the need to extend the President's trade promotion authority (TPA) this summer, policymakers have ample opportunity to implement a more protectionist policy stance or to stay the course and continue to allow America to reap the benefits of open market policies.
The Tangible Benefits of Trade
The gains from freer trade are substantial. Today, the $12 trillion U.S. economy is bolstered by free trade, a pillar of America's vitality. In 2005, U.S. exports to the rest of the world totaled $1.2 trillion and supported one in five U.S. manufacturing jobs. Jobs directly linked to the export of goods pay 13 percent to 18 percent more than other U.S. jobs. Moreover, agricultural exports hit a record high in 2005 and now account for 926,000 jobs.
In Colorado, international trade supports one of every 20 private-sector jobs and more than 16 percent of manufacturing jobs. International trade supports an estimated 6.1 percent of Ohio's total private-sector employment and more than 20 percent of all manufacturing jobs. In South Carolina, trade supports one of every 10 private-sector jobs and more than 23 percent of manufacturing jobs. State by state across America, international trade promotes opportunity.
The service sector accounts for roughly 79 percent of the U.S. economy and 30 percent of the value of American exports. Service industries account for eight out of every 10 jobs in the U.S. and provide more jobs than the rest of the economy combined. Over the past 20 years, service industries have contributed about 40 million new jobs across America.
As today's global economy offers unparalleled opportunities for the U.S., continuing to expand trade by lowering barriers to goods and services is in America's economic interest. Freer trade policies have created a level of competition in today's open market that engenders innovation and leads to better products, higher-paying jobs, new markets, and increased savings and investment. Small business, a critical component of the U.S. economy, creates two out of every three new jobs and accounts for about one-quarter of America's exports.
U.S. Free Trade Agreements
As of April 2007, the U.S. has 10 FTAs with 16 countries: Israel; Canada and Mexico (NAFTA); Jordan; Singapore; Chile; Australia; Bahrain; Oman; Morocco; and the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua (DR–CAFTA).
While some countries are still working to implement more recent trade agreement legislation, the U.S. has already seen impressive results. The FTAs account for more than $900 billion in two-way trade, which is about 36 percent of the total of U.S. trade with the world. U.S. exports to FTA partner countries are growing twice as fast as U.S. exports to countries that do not share FTAs with the U.S.
The oft-demonized NAFTA has in fact generated significant gains for the U.S. since its inception. Canada and Mexico are America's first and second largest trade partners, accounting for about 36 percent of all U.S. export growth in 2005. Between 1993 and 2005, U.S. manufacturing and agriculture exports to Canada and Mexico grew by 133 percent and 55 percent, respectively. Each day, NAFTA countries conduct roughly $2.2 billion in trilateral trade. This trade supports U.S. jobs, bolsters productivity, and promotes investment.
Free Trade Is Fair Trade
An artificial distinction has been drawn between "free trade" and "fair trade." The idea that free trade is fair only if countries share identical labor costs and economic regulations or if domestic producers are compensated for market losses to more competitive foreign producers is false. The economic benefits of free trade derive partly from the fact that trading partners are different, allowing any country embracing world markets a chance to be competitive. Free trade is fair when countries with different advantages are allowed to trade with a minimum of restriction and capitalize on those differences.
Low wage costs, access to cheap capital, education levels, and other fundamental variables all play a role in determining the comparative advantages that one country has over another in the global marketplace. To "fairly" equalize those differences— provided those differences are based on a country's economic and demographic reality—only negates or reduces a country's ability to benefit from participating in the global trade system.
Such "fairness" also prevents countries from realizing the tangible gains from freer trade: a more competitive economic environment and better, more efficient domestic resource allocation. These positive effects drive greater long-term economic potential, create economic opportunity, better promote a cleaner environment, and improve living standards at home.
Free trade allows a county to compete in the global market according to its fundamental economic strengths and to reap the productivity and efficiency gains that promote long-run wealth and prosperity. In reality, there is no distinction between free trade and truly fair trade.
Armed with the facts, Congress should bolster itself against "free trade fatigue" and protectionist sentiment and revitalize the drive to promote economic growth and prosperity by eliminating international trade barriers. Renewing the President's trade promotion authority to facilitate the completion of new bilateral free trade agreements, reforming and reducing the scope of the U.S. farm bill to promote a successful conclusion to the WTO Doha Development Round, and generally guarding against populist, protectionist trade policy changes would go far toward expanding economic opportunity in the U.S. and around the world.
Daniella Markheim is Jay Van Andel Senior Trade Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.
Office of the U.S. Trade Representative, 2006 Trade Policy Agenda and 2005 Annual Report, March 2006, at (January 24, 2007).
U.S. Department of Commerce, International Trade Administration, "Exports, Jobs, and Foreign Investment," at
(April 1, 2007).
U.S. Department of Commerce, Bureau of Economic Analysis, "International Economic Accounts," at (January 24, 2007).
Office of the U.S. Trade Representative, "Free Trade in Services: Opening Dynamic New Markets, Supporting Good Jobs," May 31, 2005, at (March 30, 2007).
Dominican Republic–Central America Free Trade Agreement.
Office of the U.S. Trade Representative, 2006 Trade Policy Agenda and 2005 Annual Report, p. 3.
U.S. Department of Commerce, "International Economic Accounts."
Office of the U.S. Trade Representative, "NAFTA: A Strong Record of Success," March 2006, at (January 24, 2007).
- The average U.S. tariff rate on all goods has fallen from over 19 percent in 1933 to 1.8 percent in 2004.
- As a percentage of GDP, the importance of trade in the economy has climbed from single digits in the 1930s to nearly one-quarter of U.S. GDP in 2004.
- At the same time that trade has become freer, real per capita GDP in the U.S. (in constant 2000 dollars) has climbed from a low of $5,061 in 1933 to about $36,000 in 2004.
Of course, all that CHINESE MELAMINE in the pet food — and NOW SOME HUMAN FOOD — is just an added bonus.
Can’t wait to see what’s next from the Wide World of Globalism and FREE TRADE.
Kinda’ like saying free(r) access to handguns causes crime, no?
Are we operating under unknown pretenses? Free trade would mean no restrictions whatsoever. As long as governments get involved there is no such thing as free trade - just agreements that put America at a disadvantage.
Forgot to mention that all that increase in GDP will be needed to pay for added MEDICAL COSTS and FUNERALS due to the POISONINGS.
And I’m sure the ABA is licking it’s well-fed (with only the very best U.S. produced foodstuffs) chops about the fees flowing from the pending lawsuits.
Free trade forces Americans to get off their butts and be creative. Being dependent upon a corporation for a job is only slightly better than being dependent on the govt for a handout.
Thanks, Capt. Obvious.
I noticed there wasn't one word about importing oil.
Isn't the call for eliminating the dependency on foreign oil a call for a "protectionist" act? Why is it freetraders are such hypocrites when it comes to dependency on foreign oil?...Or maybe you America haters think foreign oil dependency is also good for us.
I noticed there wasn't one word about importing oil.
Brilliant! Explain the "hypocrisy" of me wanting to open-up ANWR for drilling, and being a "free-trader."
If “Free Trade” is such a good thing for America, why are we running a continual trade imbalance?
What you win is the opportunity to tell us precisely how you, personally, profit from US exports.
3.2 million factory jobs in the US have been lost since 2000 (that’s one of every six.) Electronic components for our “smart bombs” are imported from China. What’s not to like?
Manufacturing jobs have been declining world-wide for more than thirty years. If we don’t want to purchase Chinese components for smart bombs (I know I don’t want to), we should tell our defense contractors not to do so. We don’t have a FTA with China, anyway.
If you want fair trade as well as the mentioned advantages of free trade, change the taxing point from income to products. A product brought to market here will have the same tax in it regardless of its point of origin. People making products domestically will then be able to compete with foreign sources. Also, removing the yoke of income tax from our collective necks will free up billions currently wasted in the costs of forecasting, calculating, recording, collecting, tracking, managing, policing and disbursing income taxes.
This is the common myth. This is what the average person would probably think before educating himself. Reality is the opposite: only a regulated market can possibly be free.