August 6, 2001 | Commentary on Foreign Aid and Development

Trade Benefits All

Turn on the evening news, and you'll hear phrases such as "Trade Promotion Authority," the "Uruguay Round," and others that are about as obscure to most people as the Treaty of Ghent -- and seem just about as relevant.

If only that were true. The fact is, those words are about free trade, an issue that affects everyone. So here's a quick review of what those words mean and why they can mean prosperity for every American:           

Trade Promotion Authority (a.k.a., "fast track" authority) allows the president to negotiate trade agreements that Congress can approve or reject, but not change. The president's new authority, if Congress grants it, can lead to agreements that lower tariffs both here in the United States and in other countries.

Why should you care? Tariffs are basically hidden taxes, and all Americans benefit if they're lower. For example, if you make something in a factory all day, your product can be sold overseas without added costs, making it more attractive for foreigners who want to buy it. Also, when you go shopping, you can buy imported items at lower prices because they, too, have lower tariffs. With low tariffs, everybody has more choices of more items at lower prices.           

In addition, lower tariffs don't mean fewer American jobs, although that's a common misperception. Many observers, including former presidential candidate Ross Perot, predicted that the North America Free Trade Agreement (NAFTA) would result in fewer U.S. jobs. But the U.S. Department of Commerce estimated that, just four years after NAFTA took effect in 1994, 2.6 million Americans had jobs based on U.S. exports to our NAFTA partners -- a 30 percent increase from pre-NAFTA levels. That's an extra 600,000-plus jobs that resulted from free trade. 

Moreover, free trade actually raises family annual income and lowers family expenses. The two landmark trade agreements of the 1990s, NAFTA and the Uruguay Round, "have boosted the annual income and lowered the cost of purchases for an average family of four by $1,300 to $2,000," U.S. Trade Representative Robert Zoellick recently told Congress. In other words, free trade equals more money in your pocket.

And it's not mere pocket change. In 1999, for example, California exported more than $6.9 billion in agricultural goods, according to the U.S. Department of Agriculture. California benefited from the Uruguay Round talks because they led Japan, Korea, Thailand and Malaysia to lower tariffs on products such as oranges.

California isn't the only success story. According to the Commerce Department, from 1993 to 1998 Texas increased its exports by $13.4 billion. The question is, where would these states be without these trade agreements -- and how much more would they benefit if new trade agreements could be negotiated?

There are 130 trade and investment agreements in the world today, and the United States is involved in only two of them. While Congress disputes whether to grant the president Trade Promotion Authority, the rest of the world marches forward with trade agreements, and we're left behind. Chile, for example, is trading more with Canada than with the United States -- because we have no agreement yet with Chile.

A new round of World Trade Organization talks is scheduled to start in the Persian Gulf nation of Qatar this November. But without Trade Promotion Authority, the United States won't be able to lead the talks, much less actively participate in them. Instead, we'll be at the mercy of countries that compete against us.  "If Trade Promotion Authority is denied by Congress, it would be hard for the U.S. administration to establish itself as a credible trading partner," notes Pascal Lamy, the European Commissioner for Trade.

The lesson is simple: Without Trade Promotion Authority, the United States won't be taken seriously as a prospective trading partner. Being in only two out of 130 trade agreements doesn't help matters, and it's made worse by the reluctance of many countries to enter into negotiations with the United States.

Yes, we are currently negotiating a free trade agreement with Chile. But it took years to convince the Chileans to enter into such talks. We can't keep doing business that way.

Sara J. Fitzgerald is a trade policy analyst in the Center for International Trade and Economics at The Heritage Foundation (www.heritage.org).

About the Author

Sara J. Fitzgerald Policy Analyst
Center for Trade and Economics (CTE)

Related Issues: Foreign Aid and Development

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