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Transcript
Navya Janga Trade Liberalization: A World With No Borders International free trade is operated with reduced tariffs, regulations, and restrictions. The premise of free trade is reducing the real-cost of goods for the importing country while simultaneously increasing the economic output of the exporting country. (Harberger) Globalization in the late 1900s and early 2000s led to the proliferation of free trade. At present, there are 398 bilateral and plurilateral free trade agreements (FTAs) in force around the world, with the United States involved in 20 and in the process of negotiating more. In order to recuperate from the Great Depression, the United States implemented harsh trade protectionism policies, which caused unrest in the international community and did little to improve the economy. Subsequently, the United Nations found it necessary to establish international trade with less stringent regulations and equal access to foreign goods. As a result, the General Agreement on Tariffs and Trade (GATT) was formed in 1948 as the first major multilateral free trade agreement and grew to ninety-four countries by the 1980s. Despite its success as a tariff accord, GATT was unsuccessful in drafting a multilateral agreement that satisfied all of its members and resolving trade disputes. One instance of GATT’s failure is causing a minor trade war between the United States and the European Community over import barriers to American citrus – although the GATT ruled in favor of the United States, the European Community simply ignored it. (Choate and Linger) Due to this inability to enforce authority, member countries became hesitant to approach GATT. As a result of this skepticism, by the 1980s, free trade was becoming an outdated practice – 73% of the world did not engage in free trade. (Choate and Linger) This was fixed later when GATT later evolved into the World Trade Organization (WTO). Rather than relying on the GATT’s diplomatic views, the WTO enforced legal policies that not only covered trade, but also services and intellectual property. Today, 164 countries are members of WTO, all working towards creating freer global markets. The majority of the world adopting free trade policies underscores the importance of FTAs and WTO. It is in the best interest of the United States to continue expanding free trade agreements. Not doing so would put the US at a disadvantage to organizations such as Association of Southeast Asian Nations (ASEAN) and the European Union (EU). The profits of participating in free trade agreements can readily be seen in the economy of the United States. In 1987, the bilateral free trade agreement between Canada and the United States (CUSFTA) was negotiated in a remarkably short amount time, yet covering a plethora of issues. Later, the two nations drafted Mexico, creating the North American Free Trade Agreement (NAFTA). This proved to be immensely successful when NAFTA claimed the spot as the second largest regional trade exporter with $2, 493 billion in 2014, composing 14% of world trade. (WTO) In 2006, the United States experienced a $762 billion trade deficit. (Wen and Smiek). However, in 2013, the United States ran a $61 billion trade surplus with its FTAs. (US Chamber of Commerce) These FTAs aid the United States in holding its spot as the second largest exporting country in the world. In 2014, NAFTA claimed the spot as the second largest regional trade exporter with $2,493 billion, composing 14% of world trade. (WTO) In fact, in 2015, 47% of United States exports were to FTA partner countries. (ITA) With an increase in FTAs comes an increase in trade, escalating the role the United States plays in the global marketplace. The underlying goal of international trade is to be able to pay for a country’s exports with its imports. In order to do so, the United States must open its markets to more foreign partners in order to avoid wasting resources on something produced cheaper overseas. Furthermore, trade liberalization benefits not only the United States, but also its foreign counterparts. This benefit is directly seen in “growth miracle” countries, where exports outpaced the gross domestic product (GDP). For example, Mexico’s exports grew faster than its GDP by 12.5% between 1995 and 2000. (Harberger) This gave Mexico more money to buy things essential for the well-being of its citizens and the development of the country. In addition, side benefits such as export expansion are a result of trade liberalization as seen in a “gold rush economy.” (Harberger) Direct foreign investment and migration of the international labor force helps generate more economic output. Opponents of international free trade agreements argue that FTAs cause intraregional job losses. However, data refutes these claims. The Bureau of Labor Statistics reported that since NAFTA has been put in place, the United States has created more than 800,000 jobs. In addition, the employment rate dropped from 7.1% to 5.1%. (Bureau of Labor Statistics) Additionally, the increase in trade has supported more than 5.4 million US jobs. The US Chamber of Commerce reports that exporting manufacturing jobs pay 18% higher wages than those that aren’t. (US Chamber of Commerce) Furthermore, free trade reduces the cost of goods for American consumers, increasing the purchasing power of the average American household by about $10,000 annually. (Bergsten) Regardless of the growth in jobs, it is crucial to remain cognizant of jobs being lost to offshoring. The United States must institute government training and financial support for those that become unemployed due to international movement of jobs, as well as aid finding a new place of employment. As seen in the history of the United States, international free trade helped bring the economy out of the Great Depression. Furthermore, as a major component of the world economy, the United States is obligated to be actively involved in world trade and to open its markets to all countries. Additionally, FTAs have escalated United States’ exports and brought considerable amounts of profits. Since the United States is able to make better use of its resources, more jobs are created and the cost of products is reduced, allowing low and middle-class families are able to live higher quality lives. With more FTAs, the United States is able to reap more of these benefits. With international free trade agreements, the United States is one step closer to making the American Dream a reality – “the dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” (James Turslow Adams) Works Cited Bergsten, Fred. A New Foreign Economic Policy for the United States. Peterson Institute for International Economics, piie.com/publications/chapters_preview/3802/1iie3802.pdf. International Trade Administration. "Free Trade Agreements." International Free Trade Administration, trade.gov/fta/. Accessed 1 Jan. 2017. International Trade Statistics 2015. Geneva, World Trade Organization, 2015, www.wto.org/english/res_e/statis_e/its2015_e/its2015_e.pdf. Accessed 1 Jan. 2017. United States, Congress, Chamber of Commerce. The Impressive Benefits of America's Free Trade Agreements. Government Printing Office, www.uschamber.com/sites/default/files/open_door_trade_report.pdf. ---, ---, Office of the Historian. Bretton Woods-GATT,1941-1947. Government Printing Office. Office of the Historian, history.state.gov/milestones/1937-1945/bretton-woods. Accessed 1 Jan. 2017. Wen, Yi, and Luke M. Shimek. The U.S. Consumption Boom and Trade Deficit. Research report no. 24, St. Louis, Federal Reserve Bank of St. Louis, 2007, files.stlouisfed.org/research/publications/es/07/ES0724.pdf. Economic Synopses.