Foreign Trade

Return to Common Sense

May 13, 2015

Section: Foreign – Trade

“Global free trade is essential for American economic growth and it rewards those partner countries that embrace free markets with economic and job growth.”

“No nation was ever ruined by trade.” Benjamin Franklin.

Philosophy (Background, Issues, Objectives):

Commerce Department International Trade Administration (ITA) promotes trade and investment.

ITA represents in trade negotiations, bilateral and multilateral discussions, and the rulemaking process.
ITA stimulates innovation and investment, enhances economic growth, and supports U.S. industries.
Bureau of Economic Analysis (BEA) tracks imports and exports by date, type, and country.
In 2012, annual foreign aid budget was $31.2 billion in economic assistance, going to 183 countries, varying from $3.3 billion to Afghanistan to $3,950 to Brunei.

In 2012, USAID assistance was $13.5 billion.

In 2012, annual military assistance was $23.3 billion.

U.S. is the world’s largest trading nation, and a clear beneficiary of free trade.

World Trade Organization (WTO) global trade talks seek consensus on transnational trade issues.

o WTO and bilateral Free Trade Agreements (FTA) increase access.

o Globalization and free trade undermines the economic basis of terrorism.

o Trade barriers and agricultural subsidies are key discussion issues.

American security is enhanced by free trade as countries with trade relationships likely to cooperate.
A growing trade deficit is generally a sign of a healthy, expanding economy.
Countries that have liberalized trade have seen growth rates rise, while closed economies lagged.
The 2013 Index of Economic Freedom only ranks the U.S. 37^th in Trade Freedom.

Globalization with its open movement of people and stuff across borders pays off in many measurable ways, some obvious, some more surprising.

Longer, Healthier Lives - Economic globalization significantly boosts life expectancy, especially in developing countries, measured by life expectancy and infant mortality.
Women's Liberation - Economic and social globalization exert a positive influence on the social institutions that reduce female subjugation and promote gender equality. Globalization tends to liberate women from traditional social and political orders.
Less Child Labor - The more open a country is to international trade and foreign investment, the lower the incidence of child labor exploitation.
Faster Economic Growth - Trade openness and liberalization significantly boost a country's rate of economic growth, producing average annual growth rates that were about 1.5% higher than before liberalization and investment rates rose 1.5–2.0%.
Higher Incomes - A lower level of trade protection is associated with higher per-capita income.
Less Poverty - Globalization and trade openness revealed a negative correlation between globalization and poverty, with most of the reduction in absolute poverty results from better information flows (e.g., access to cellphones) that improve the functioning of markets and lead to the liberalization of trade.
More Trees - Trade openness tends to improve environmental quality in rich countries while increasing pollution and deforestation in poor countries. Air and water pollution decline among rich-country members of the OECD, whereas it increases in poor countries as they liberalize and embark on the process of economic development, but as poor countries become rich, they flip from getting dirtier to becoming cleaner. Deforestation reverses when average incomes reach a bit more than $3,000 per year. These studies basically confirm the Environmental Kuznets Curve hypothesis, in which various indicators of environmental degradation tend to get worse during the early stages of economic growth, but when average income reaches a certain point, subsequent economic growth leads to environmental improvement.
Peace - Bilateral trade and global openness decrease the probability of conflict between countries and an increase in bilateral trade interdependence significantly promotes peace.
More Productive Workers - Total factor productivity (TFP) is the portion of output not explained by the amount of inputs used in production. Its level is determined by how efficiently and intensely the inputs are utilized in production. In other words, it is all those factors—technology, honest government, a stable currency, etc.—that enable people to work "smarter" and not just harder. Removing mobility barriers could plausibly produce overall gains of 20–60 percent of global GDP.
Better Job Prospects - Migration inflows contribute to host country economic prosperity (positive impact on GDP per capita and total unemployment rate). Immigration flows do not harm the employment prospects of residents, native- or foreign-born.

United States has had great success expanding Free Trade in this hemisphere.

NAFTA includes Canada and Mexico.

o The trade deficit with NAFTA countries grew from $70 billion in 2000 to $140 billion in 2008.

§ $58 billion of deficit increase has been in energy imports from Mexico and Canada.

§ Agricultural and manufactured goods sales to NAFTA countries have basically kept pace with imports.

o Mexico is benefiting greatly from NAFTA.

§ Mexico is America’s second largest trading partner.

§ U.S. imports from Mexico increased from $48 billion to $216 billion from 1993 to 2006.

§ U.S. exports to Mexico increased from $52 billion to $156 billion from 1993 to 2006.

§ Mexico is #1 source of U.S. illegal immigration.

o Customs Union may be appropriate for Canada FTA for common external trade policy.

§ Canada is America’s #1 customer and energy supplier.

§ Canada’s industries enjoy no currency advantage.

§ Canadiens are not flooding the U.S. marketplace with cheap labor or social disruption.

CAFTA includes Dominican Republic, Costa Rica, El Salvador, Guatamala, Honduras, and Nicaragua.

Seven FTAs with 11 countries have dramatically improved trade from 1999 to 2007:

· US merchandise exports to these countries increased by 75.1%.

· US merchandise exports to Chile increased by 170%.

· US merchandise exports to CAFTA increased by 78.5%.

· US trade balance with CAFTA improved from $2.8 billion deficit to $3.7 billion surplus.

· US merchandise exports increased to Singapore by 61.8%; to Jordan by 211%; to Australia by 62.5%; to Morocco by 137.3%; to Bahrain by 69.9%.

There is some trepidation about Security and Prosperity Partnership of North America (SPP):

· Breadth and depth of agreement seems more like a Treaty, requiring Senate approval.

· “North American Union” and “NAFTA Superhighway” are both urban legends.

o Fear of replacing American dollar with worthless new currency “The Amero.”

o Closer economic integration could lead to lowered immigration barriers.

A Pacific Alliance was established in 2012 to support free trade and open commerce.

The initial members were Chile, Columbia, Mexico and Peru, representing more than one third of Latin America’s total GDP, a similar share of population, and roughly half of its global trade.
First year they abolished tariffs on 90% of all goods they trade with each other.

The Organization for Economic Co-operation and Development (OECD) is an international economic organization of 34 countries founded in 1961 to stimulate economic progress and world trade.

The OECD originated in 1948 as the Organization for European Economic Co-operation (OEEC)to help administer the Marshall Plan for the reconstruction of Europe after World War II.
Most OECD members are high-income economies with a "very high" Human Development Index (HDI) and are regarded as developed countries.
Currently, 25 non-members participate as regular observers or full participants in OECD Committees and about 50 non-members are engaged in OECD working parties, schemes or programs.
The OECD's headquarters are in Paris, France.
The United States funds the OECD by about $100 million per year.

Principles:

The less government intervention translates into a better economy.

Free trade allows the flow of jobs and revenues freely across international borders.
Strong currencies encourage investments overseas, while weak currencies encourage investments here.

The United States requires export licenses for only a bare minimum of national security concerns:

Denied Party Restrictions (non-governmental entities).
Country Restrictions (governments contrary to our national interests).
Product Restrictions (national security leadership).

Recommendations:

Short Term, Integrate all agency opinions (State, Intelligence, Defense, UN, USAID) into a unified foreign policy.

Reduce U.S. agricultural trade barriers to promote greater efficiency in U.S. industry and agriculture.
Eliminate “Buy American” laws.
Eliminate the Mercant Marine Act of 1920 and the Passenger Services Act of 1896 that require ships moving from one U.S. port to another to be U.S. made and crewed

Seek additional partners in bilateral Free Trade Agreements, including labor standards requirements.

Extend President’s Trade Promotion Authority (TPA).
Require swift vote on Free Trade Agreement approval.
Sign Free Trade Agreements with Ecuador, Peru, and Bolivia.
Sign Free Trade Agreements with New Zealand, Switzerland, Malaysia, South African Customs Union, Thailand, Oman, and United Arab Republics.
Ratify Permanent Normal Trading Relations (PNTR) with Russia.

Long Term, Create an alliance of free-trading nations with a commitment to free trade and the rule of law:

Finalize the Trans-Atlantic Investment Partnership (TPIP) - a comprehensive, multilateral free-trade agreement that the United States and the European Union to reinforce the longstanding close relationship with Europe.
Finalize the Trans-Pacific Partnership (TPP) - a comprehensive, multilateral free-trade agreement that the United States, Canada, Mexico, Peru, Chile, Japan, Australia, Singapore, New Zealand, Malaysia, Brunei, and Vietnam are negotiating, using many of our existing bilateral free-trade agreements as a basis to create a strong bloc of allies united by free trade.
Formalize a U.S.-EU free-trade agreement - the EU is America’s largest trading partner, with $1.5 trillion in annual trade, representing 40% of the world’s GDP and 47% of global trade.
Sign a U.S.-Brazil free-trade agreement - Brazil, with the world’s 6^th largest economy, is a growing regional power and a natural U.S. ally and a FTA will cement Brazil’s position as a primary force for stability and peace in South America, and as a counterweight to neo-socialist regimes and budding narco-states.
Reform the Generalized System of Preferences (GSP) - provides a helping hand to developing economies by offering them non-reciprocated trade preferences if they strictly adhere to the rule of law.

References:

“Does free trade breed poverty and pollution?” by Steve Chapman dated March 24, 2002 published by Chicago Tribune.

“North American Union: Deconstructing the U.S.” by Diane Alden dated June 16, 2006 published by News Max at http://www.newsmax.com/archives/articles/2006/6/15/132429.shtml .

“On the Road Again: Four Goals for the New U.S. Trade Representative” by Tim Kane dated June 16, 2006 published by The Heritage Foundation on http://www.heritage.org/Research/TradeandForeignAid/wm1130.cfm .

“North American Union: Coup d’etat American Style” by Diane Alden dated June 17, 2006 published by News Max at http://www.newsmax.com/archives/articles/2006/6/16/141829.shtml .

“North American Union: Remaking Three Nations” by Diane Alden dated July 4, 2006 published by News Max at http://www.newsmax.com/archives/articles/2006/7/3/181336.shtml .

“U.S. Trade Policy Tracker” by Anthony Kim and Daniella Markheim dated July 7, 2006 published by The Heritage Foundation on http://www.heritage.org/Research/TradeandForeignAid/bg1949.cfm .

“Security and Prosperity Partnership a Constitutional Override” by Geoff Metcalf dated October 30, 2006 published by News Max at http://www.newsmax.com/archives/articles/2006/10/30/85705.shtml .

“Permanent Normal Trade Relations for Russia Would Benefit the U.S. and Russia” by Daniella Markheim and Ariel Cohen dated December 13, 2006 published by The Heritage Foundation at http://author.heritage.org/Research/RussiaandEurasia/wm1286.cfm .

“Michael Medved Loses His Cool Over North American Union” by Jerome R. Corsi dated January 2, 2007 published by Human Events Online at http://www.humanevents.com/article.php?id=18721 .

“There Isn’t Going to Be a North American Union” by John Hawkins dated January 10, 2007 published by Free Republic at http://www.freerepublic.com/focus/f-news/1765258/posts?page=9 .

“Reauthorize Trade Promotion Authority Without New Restrictions” by Danielle Markheim dated January 12, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/TradeandForeignAid/wm1307.cfm .

“Plan for superhighway ripped as ‘urban legend’” by Jerome R. Corsi dated January 26, 2007 published by World Net Daily at http://www.wnd.com/news/article.asp?ARTICLE_ID=53950 .

“Free Trade and Funny Math” by Patrick J. Buchanan dated February 27, 2007 published by Human Events Online at http://www.humanevents.com/article.php?id=19590 .

“Free Trade is Dead, Long Live Free Trade” by Tim Kane dated March 27, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/TradeandForeignAid/wm1409.cfm .

“Free-Trade Hypocrisy” by Tom Brewton dated March 30, 2007 published by American Daily at http://www.americandaily.com/article/18190 .

“Globalization in a Nutshell” by Mark W. Hendrickson dated April 4, 2007 published by Front Page Magazine at http://www.frontpagemagazine.com/Articles/ReadArticle.asp?ID=27630 .

“Why Free Trade Works for America” by Daniella Markheim dated April 16, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/TradeandForeignAid/bg2024.cfm .

“Value-added taxes put U.S. manufacturers at disadvantage” by Phyllis Schlafly dated April 23, 2007 published by Town Hall at http://www.townhall.com/columnists/PhyllisSchlafly/2007/04/23/value-added_taxes_put_us_manufacturers_at_disadvantage .

“Free-Trade Hypocrisy” by Thomas E. Brewton dated April 30, 2007 published by Intellectual Conservative at http://www.intellectualconservative.com/2007/04/30/free-trade-hypocrisy/ .

“Canada’s Problem: Domestic Trade Barriers” by Christopher Sands dated May 22, 2007 published by American Magazine at http://www.american.com/archive/2007/may-0507/canada2019s-problem-domestic-trade-barriers .

“The Freedom Connection” by Susan Ariel Aaronson dated June 11, 2007 published by American Magazine at http://www.american.com/archive/2007/june-0607/the-freedom-connection .

“In Global Trade, Labor Standards Have a Long History” by Robert Rogowsky and Eric Chyn dated July 18, 2007 published by American Magazine at http://www.american.com/archive/2007/july-0707/in-global-trade-labor-standards-have-a-long-history .

“The NAFTA Superhighway” by Christopher Hayes dated August 27, 2007 published by The Nation at http://www.thenation.com/docprint.mhtml?i=20070827&s=hayes .

“The Non-Existent North American Union” by John Hawkins dated September 14, 2007 published by Town Hall at http://www.townhall.com/columnists/JohnHawkins/2007/09/14/the_non-existent_north_american_union .

“Does SPP + TTC + NAFTA = NAU?” by William D. Bailey dated October 19, 2007 published by American Daily at http://www.americandaily.com/article/20653 .

“Globalization Is A Reality – Deal With It” by Robert Samuelson dated October 23, 2007 published by Investors Business Daily at http://www.ibdeditorials.com/IBDArticles.aspx?id=278028687267492 .

“US will retake economic superpower crown” by Ambrose Evans-Pritchard dated November 11, 2007 published by UK Telegraph at http://www.telegraph.co.uk/core/Content/displayPrintable.jhtml;jsessionid=4PQHLOYRFAZNRQFIQMFCFGGAVCBQYIV0?xml=/money/2007/11/12/ccview112.xml&site=1&page=0 .

“Productivity Growth, Not Trade, Is Cutting Manufacturing Jobs” by Terry Miller dated November 27, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/Economy/wm1709.cfm .

“Decoupling Myths Expose Trade Deficit Myths” by John Tamny dated January 31, 2008 published by Real Clear Politics at http://www.realclearmarkets.com/printpage/?url=http://www.realclearmarkets.com/articles/2008/01/decoupling_myths_expose_trade.html .

“Free Trade: The Real Economic Stimulus” by James M. Roberts dated February 29, 2008 published by Front Page Magazine at http://www.frontpagemagazine.com/Articles/Read.aspx?GUID=5B0F6C53-5D17-4ADA-B847-37D705FF9777 .

“It’s time to rethink NAFTA” by Diane Francis dated March 4, 2008 published by National Post at http://www.nationalpost.com/opinion/columnists/story.html?id=072f3c08-c971-46ec-86a8-ae0842f1a037&k=94917 .

“NAFTA Nonsense” by Daniel Gross dated March 4, 2008 published by Slate Magazine at http://www.slate.com/id/2185739/ .

“What NAFTA Trade Deficit?” by John Engler dated April 21, 2008 published by The Wall Street Journal at http://online.wsj.com/article/SB120873451908929781.html?mod=opinion_main_commentaries .

“Free Trade Agreements: Promoting Prosperity in 2008” by Daniella Markheim dated May 2, 2008 published by The Heritage Foundation at http://www.heritage.org/Research/TradeandForeignAid/bg2132.cfm .

“The Fast-Track Trade War” by Claude Barfield dated May 7, 2008 published by The American Magazine at http://www.american.com/archive/2008/may-05-08/the-fast-track-trade-war .

“An Act to End Trade” by Daniella Markheim dated July 6, 2009 published by The Heritage Foundation at http://www.heritage.org/Research/tradeandeconomicfreedom/wm2524.cfm .

“Global Trade Liberalization Continues, But Risks Abound” by Daniella Markheim and Terry Miller dated September 28, 2009 published by The Heritage Foundation at http://www.heritage.org/Research/tradeandeconomicfreedom/bg2320.cfm .

“Obama’s Dangerous Export Initiative” by John F. Di Leo dated January 27, 2011 published by American Thinker at http://www.americanthinker.com/2011/01/obamas_dangerous_export_initia.html .

“’No Nation Was Ever Ruined by Trade’” by Ronald Bailey dated May 3, 2011 published by Reason Magazine at http://reason.com/archives/2011/05/03/no-nation-was-ever-ruined-by-t .

“Sending US Tax Dollars to a Paris-based International Bureaucracy So It Can Work with ‘Occupy’ Nutjobs to Push for Higher Taxes” by Daniel J. Mitchell dated June 25, 2012 published by Town Hall at http://finance.townhall.com/columnists/danieljmitchell/2012/06/25/sending_us_tax_dollars_to_a_parisbased_international_bureaucracy_so_it_can_work_with_occupy_nutjobs_to_push_for_higher_taxes .

“U.S. Overseas Loans and Grants - Greenbook” dated September 12, 2012 published by United States Agency for International Development at http://gbk.eads.usaidallnet.gov/docs/gbk2012.pdf .

“The Economic Freedom Alliance Act” by Devin Nunes dated September 28, 2012 published by National Review Online at http://www.nationalreview.com/articles/328732/economic-freedom-alliance-act-devin-nunes .

“2013 Index of Economic Freedom: No Boost in Trade Freedom” by Bryan Riley and Terry Miller dated October 25, 2012 published by The Heritage Foundation at http://www.heritage.org/research/reports/2012/10/2013-index-of-economic-freedom-no-boost-in-trade-freedom .

“A transatlantic tipping-point” dated April 27, 2013 published by The Economist at http://www.economist.com/news/united-states/21576704-historic-trade-pact-between-america-and-europe-needs-saving-transatlantic .

“New Pacific Trade Deal with Japan is Game Changer” by Steve Forbes dated April 30, 2013 published by Investor’s Business Daily at http://news.investors.com/ibd-editorials-perspective/043013-654144-trans-pacific-trade-partnership-will-help-boost-growth.htm .

“Latin America’s Free-Trade Champions” by Jaime Darenblum dated May 16, 2013 published by PJ Media at http://pjmedia.com/blog/latin-americas-free-trade-champions/ .

“Trade Adjustment Assistance: Another Evaluation Finds the Program to Be Ineffective and Costly” by David B. Muhlhausen dated July 29 2013 published by The Heritage Foundation at http://www.heritage.org/research/reports/2013/07/trade-adjustment-assistance-another-evaluation-finds-the-program-to-be-ineffective-and-costly?ac=1 .

“Globalization is Good for You” by Ronald Bailey dated April 30, 2015 published by Reason at http://reason.com/archives/2015/04/30/globalization-is-good-for-you .