Download Navya Janga Trade Liberalization: A World With No Borders

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1980s, free trade was becoming an outdated practice – 73% of the world did not engage in free trade.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.