January 25, 2007
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Key Issues and Facts
The Benefits of Trade Liberalization
Trade Liberalization Is Good for the U.S. Economy, U.S. Workers and U.S. Consumers
Trade liberalization creates jobs, fosters economic growth in the United States, and improves consumer choice and the standard of living of American families.
- Exports accounted for about 25 percent of U.S. economic growth in the 1990s and 15 percent in the last decade. In the last 10 years, freer trade has helped raise U.S. gross domestic product by nearly 40 percent and has helped add 16 million jobs.
- In the future, participation in the global economy will be even more critical to economic growth. Ninety-six percent of the world’s consumers live outside the United States. U.S. producers must be able to reach those consumers to expand the U.S. economy and to create jobs.
- Trade liberalization helps grow U.S. exports. In 2005, U.S. goods and services exports accounted for 10.4 percent of gross domestic product. U.S. exports in 2005 were up 11 percent over 2004. Manufacturing exports have increased 82 percent in the last decade, and services exports have doubled.
- If remaining global trade barriers are eliminated, U.S. annual income could increase by $500 billion. To the typical American household, that means an additional $4,500 a year.
- The benefits of liberalized trade are apparent from our past trade agreements. The North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) agreements increased U.S. gross domestic product (GDP) by $40 billion to $60 billion a year. When that is combined with lower prices on imported products, the average American family gained $1,000 to $1,300 a year from these two agreements.
- Today, U.S. annual income is $1 trillion higher — $9,000 per household — due to trade liberalization since 1945.
- About 97 percent of exporters are small or medium-sized companies, which create three out of four new jobs. Those companies account for 30 percent of all U.S. merchandise exports.
- Ten percent of all U.S. jobs (approximately 12 million) depend on exports. One in five factory jobs depends on international trade. Jobs that depend on trade generally pay about 13 to 18 percent more than the average U.S. wage.
- Trade creates U.S. job growth. Every $1 billion in exports of manufactured goods creates an estimated 15,000 new jobs; two to three times that number of additional jobs are created to support the new export-driven products and personnel.
- U.S. plants that export increase employment 2 to 4 percent faster annually than plants that do not export. Exporting plants also are less likely to go out of business.
Answering the Critics
The Myths and Realities of Trade Liberalization
- Trade agreements do not dictate U.S. environmental law or undermine U.S. environmental laws. International trade agreements require the United States only to apply the same standards to imported products that it applies to domestic products. Trade agreements do not prevent other countries from applying the same environmental standards to U.S. goods that they apply to their own goods.
- To achieve environmental sustainability, countries need good environmental laws and effective enforcement of those laws. Liberalized trade produces higher incomes and economic growth that make it possible for countries to improve their environmental laws and law enforcement.
- U.S. trade agreements with Australia, Bahrain, Central America, Chile, Jordan, Morocco, Oman and Singapore all require the United States and our trade partners to (1) effectively enforce environmental laws, (2) ensure that they do not weaken their environmental laws to encourage trade or investment, and (3) ensure that violations of their respective environmental laws are subject to sanctions by legal procedure.
- Liberalized trade helps improve environmental protection by lowering the barriers to the sale of environmental technologies; enabling new investments in environmental infrastructure; and making it easier for environmental scientists, engineers and technicians to provide services to developing countries.
MYTH: Liberalization undermines protection for labor.
- Trade agreements do not require the United States to change its labor laws or undermine U.S. laws protecting labor rights.
- Trade liberalization does not undermine worker rights. In fact, the opposite is true. In a study of 44 developing countries that engaged in significant trade liberalization, the Organisation for Economic Co-operation and Development (OECD) found that “there was notably no case where the trade reforms were followed by a worsening of association rights” and that freedom-of-association rights improved in 32 of the countries after trade liberalization.
- U.S. trade agreements with Australia, Bahrain, Central America, Chile, Jordan, Morocco, Oman and Singapore require the United States and our trade partners to (1) effectively enforce labor laws, (2) work to ensure that International Labour Organization (ILO) principles are protected by their domestic laws, (3) ensure that they do not weaken their labor laws to encourage trade or investment, and (4) ensure that legal proceedings are available to sanction violations of labor laws.
- Only the U.S. Congress and the U.S. president can make U.S. law. No international institution or foreign country can change U.S. laws.
- Decisions by World Trade Organization (WTO) dispute panels cannot override U.S. law. Those panels can only issue recommendations, and these recommendations have no force in the United States. Only the Congress and the president can decide whether to implement a panel recommendation. They can (1) revise U.S. law, (2) compensate a country harmed by a U.S. law through reductions in tariffs or other trade barriers, or (3) do nothing — and accept the risk that the other country may retaliate by raising tariffs or other barriers to U.S. exports.
- The United States may withdraw from the WTO, NAFTA, free trade agreements and all other trade agreements at any time.
MYTH: Trade liberalization increases U.S. trade deficits.
- The United States had trade deficits before the WTO existed and would have them if there were no WTO. The merchandise trade deficit generally grows when the economy grows and shrinks when the economy shrinks.
- The trade deficit is a result of American prosperity. The strength of the U.S. economy means U.S. consumers are able to purchase a wide variety of goods and services, including imports.
- Imports help keep inflation low by ensuring that U.S. consumers have access to a variety of competitively priced goods and that producers have access to low-cost inputs.
- Trade creates good jobs in the United States. Ten percent of all U.S. jobs (approximately 12 million) depend on exports. One in five factory jobs depend on international trade. Jobs that depend on trade generally pay about 13 to 18 percent more than the average U.S. wage.
- U.S. plants that export increase employment 2 to 4 percent faster annually compared to plants that do not export. Exporting plants also are less likely to go out of business.
- U.S. firms that are deeply integrated in worldwide markets are more likely to succeed in generating good jobs in the United States. Such jobs pay an average wage in the United States of $15,000 more than jobs in firms that are less globally integrated, or $50,000 versus $35,000.
- Contrary to the predictions of a “giant sucking sound,” NAFTA has created good jobs in the United States. In the first eight years of NAFTA, the number of U.S. jobs supported by merchandise exports to Mexico and Canada grew from 914,000 to 2.9 million. Between 1993 and 2006, U.S. employment grew by 22 million. Real hourly compensation in the U.S. manufacturing sector increased by 14.4 percent in the 10 years following NAFTA implementation, as compared to 6.5 percent in the 10 years prior to NAFTA. The U.S. unemployment rate in the 11 years before NAFTA averaged 7.1 percent; in the 11 years since NAFTA, it has averaged 5.1 percent.
Trade and Jobs
Why Trade and Investment Liberalization Creates More and Better Paying Jobs
Exports are an important source of U.S. economic growth and job creation.
- In the past decade, exports accounted for roughly one-quarter of U.S. economic growth and helped increase our gross domestic product by 40 percent.
- Ten percent of all U.S. jobs (approximately 12 million) depend on exports. One in five factory jobs depends on international trade.
- Job creation in the United States considerably outnumbers jobs lost due to import competition. The 35 million jobs created in the United States in the past 10 years have offset the 2 million jobs lost to import competition over the past 20 years.
- Over the past 20 years, the unemployment rate has fallen significantly despite a steady increase in imports over the same period. In the 11 years prior to the beginning of major trade liberalization in 1993, U.S. unemployment averaged 7.1 percent; in the 11 years since, it has averaged 5.1 percent.
- Foreign investment in the United States creates U.S. jobs. Foreign companies employ more than 6 million U.S. workers in the United States. Firms that participate in a global economy grow faster and pay more than those that do not.
- Increases in export demand lead to more job growth than do comparable increases in domestic demand. A 10 percent increase in American exports leads to a 6.9 percent increase in domestic employment. By comparison, a 10 percent increase in domestic demand creates just a 4.2 percent increase in U.S. employment. Similarly, increased sales by foreign affiliates of U.S. companies produce U.S. employment gains at the U.S. parent.
- Jobs that depend on trade generally pay about 13 to 18 percent more than the average wage.
- U.S. firms with global operations generate better domestic jobs at home. Such firms pay an average wage in the United States that is $15,000 greater than that paid by firms that are less globally integrated.
Increased market access benefits U.S. small and medium-sized business enterprises (SMEs).
- As international trade has liberalized, SMEs have increased exports markedly. Increased market access for SMEs is critical to continued SME success and to the overall health of the domestic economy. From 1992 to 2004, the number of small businesses that exported grew more than 100 percent.
- SMEs comprise 97 percent of all exporters, yet fewer than 1 percent of small businesses export. Of the SMEs that do export, nearly two-thirds of them sell into only one foreign market.
- Expanding market access through free trade is essential for SMEs. Unlike big multinational companies that can afford to establish foreign affiliates to avoid trade barriers, exports are often the only way for SMEs to sell into these markets.
- In 2001, SMEs accounted for more than 90 percent of U.S. hightechnology exporters. Small firms employ more than a third of the total U.S. high-technology employees and produce more than half of the new innovations in the United States. For most SMEs, export markets present an opportunity for significant growth.
- Between 1992 and 2004, the number of SMEs that exported increased by more than 100 percent — double the growth rate of large-firm exporters over the same period. During the same time, the number of SMEs exporting to China increased by a whopping 511 percent, compared to a 128 percent increase for large-company exporters.
- SMEs represented 99 percent of all growth in the exporter community between 1992 and 2004 and 90 percent of all U.S. exporters to China in 2004 alone. Many other SMEs export indirectly as suppliers and subcontractors for large exporting firms.
- SMEs are responsible for more than one-third of total U.S. exports to China.
- In 2004, SME exports totaled $79.1 billion to Western Hemisphere countries, $58.1 billion to NAFTA countries, $30.3 billion to Canada, $27.7 billion to Mexico, $15.4 billion to Japan and $11.4 billion to China.
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