Despite more than five decades of evidence demonstrating the gains from liberalizing trade, the impact of international trade and open markets on the U.S. economy remains a hotly debated issue. In 2005, Congress considered renewing the President’s trade promotion authority, withdrawing from the World Trade Organization (WTO), and approving the Dominican Republic–Central American Free Trade Agreement (DR–CAFTA).

Fortunately, free trade won the debate in each round, albeit sometimes by only a narrow margin. These successes are providing greater economic opportunity to Americans and allowing the United States to maintain its role as a leader in the international economic community.

However, the continued dominance of free trade in American policy is far from secure. There remain critical elements on the U.S. trade agenda that will further test the Congress’s willingness to support the President’s push to open markets bilaterally, regionally and globally.

In the future, Congress needs to guard against “free trade fatigue” and protectionist sentiment and objectively debate the merits of approving and implementing free trade agreements.

For more than 50 years, the United States and the rest of the world have reaped the economic benefits of gradual trade and investment liberalization. Congress should stay the course and allow Americans to enjoy the wealth and opportunities that will come from further freeing trade.

Bilateral and Regional Free Trade Agreements

Congress has approved free trade agreements (FTAs) with Israel; Canada and Mexico (NAFTA); Jordan; Singapore; Chile; Australia; and Morocco. Most recently, it approved DR–CAFTA, which includes the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. The gains to American families and business from these agreements have been significant.

  • In the first year of the U.S.–Singapore FTA, America’s trade surplus with Singapore more than tripled, growing to $4.3 billion.
  • Just four months after the U.S.–Australia FTA was implemented, America’s trade surplus with Australia grew by almost 32 percent to more than $2 billion.
  • Exports to Chile and Singapore expanded by $4 billion in the first year after implementing FTAs with these countries.

America’s consumers now pay less for groceries and other consumer goods, allowing them to stretch their dollars into additional consumption or savings. U.S. firms have lower operating costs as a result of cheaper imported components for their products and face a brighter investment climate. Consequently, FTAs increase the potential for the creation of better, higher-paying American jobs.

The U.S. signed an FTA with Bahrain on September 14, 2004, and recently concluded negotiations with Oman. It is currently negotiating FTAs with Thailand, Panama and the United Arab Emirates. The U.S. is also pursuing regional agreements with the countries of the Southern African Customs Union, Andean countries and 34 nations across the Western Hemisphere to create a greater Free Trade Area of the Americas. As with past U.S. trade agreements, the potential gains from these newest contenders are too good for America to pass up. The U.S. should continue to approve these important new free trade agreements and expand its free trade relationships throughout the world.

Free Trade’s Many Shapes and Sizes

Ideally, free trade should be achieved through multilateral trade negotiations across a large group of countries. However, the pace of such negotiations is slow, and consensus is hard to achieve.

FTAs negotiated by smaller groups of countries are the next best thing to promote global trade liberalization. FTAs can provide institutional competition to help keep multilateral talks on track and give the U.S. an option of pursuing agreements with countries willing to engage seriously in liberalizing foreign trade. In the process, FTAs formed with smaller groups of countries can serve as building blocks for broader agreements.

Free trade arrangements do have some potential shortcomings. First, some argue that preferential arrangements are not truly legitimate trade policy options under WTO rules. Second, bilateral and regional free trade areas may inefficiently divert international trade from lowest-cost sources to trade partners receiving preferential treatment. Finally, Congress has further criticized the Bush Administration for extending free trade proposals to countries with small economies or only marginal trade relationships with the United States. While these concerns are valid, FTAs have benefits that may outweigh the costs, maintaining the viability of such agreements as an alternative way to reduce trade barriers around the world.

Free Trade Support Is Waning

Overall, freeing trade stimulates economic growth, creates better jobs, encourages innovation and improves living standards for millions of Americans. The Index of Economic Freedom, published annually by The Heritage Foundation and The Wall Street Journal, reinforces the gains from free international trade by clearly showing that countries implementing freer trade policies experience higher per capita GDP growth than is experienced by countries that maintain trade barriers.

Historically, the U.S. has led the fight to reduce trade barriers in the WTO. This effort needs to continue if the world is to keep reaping the profits of free trade. Study after study reveals that the price of protectionism is steep for both the U.S. and the rest of the world.

American leadership depends not only on U.S. trade negotiators doing a good job, but also on congressional support for free trade. Recent statements from Members of Congress regarding domestic priorities completely miss the point. Domestic priorities—such as fostering U.S. economic growth and jobs, opening foreign markets for American farmers and manufacturers and increasing living standards—fully mesh with negotiators’ efforts to promote trade liberalization.

The American economy depends on international trade. The implementation of beneficial free trade agreements will allow America a chance at a brighter future.

Daniella Markheim is a Senior Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation. (www.heritage.org). This article appeared in Impact Analysis, January-February 2006.
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Daniella Markheim
About The Author Daniella Markheim
Daniella Markheim is Jay Van Andel Senior Trade Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation and a contributor to ConUNdrum: The Limits of the United Nations and the Search for Alternatives.




www.heritage.org


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