A case for trade

The United States’ deficit with China – $202 billion – is big. But that, in itself, is not a bad thing. And Americans benefit enormously from free trade – something that is rarely noted, says Investor's Business Daily (IBD).

Consider:

As economist Gary Clyde Hufbauer recently estimated, the average American family's income is about $10,000 higher today, thanks to the dismantling of trade barriers over the last 50 years.

Meanwhile, a University of Michigan study has calculated that family incomes could be increased an additional $2,500 just by reducing the remaining barriers by a third.

We now live in a $12 trillion economy in which one of five factory jobs is supported by exports.

On average, those jobs pay 13 per cent to 18 per cent more than non-trade jobs, according to the U.S. Trade Representative's office.

As U.S. exports grow, so do U.S. jobs.

But it isn't just the United States that's benefiting. According to a recent study in Foreign Affairs by David Dollar and Aart Kray, poor countries that globalised most aggressively saw average annual gross domestic product (GDP) growth rates surge from 1 per cent in the 1960s to 5 per cent in the 1990s. Dozens of other studies have made similar findings, says IBD.

And the debate isn't just academic. Sen. Charles Schumer (D-N.Y.), is pushing a bill to slap 27.5 per cent tariffs on all Chinese imports unless China sharply re-values its yuan against the dollar.

This is protectionism, plain and simple, says IBD. The yuan may indeed be undervalued against the dollar, but a sharp, sudden revaluation could create massive financial instability in China, the United States and the world economy.

Besides, those who'd redress trade imbalances through gimmicks such as tariffs – really just a tax on consumption here – miss the point. Free trade makes everyone wealthier, says IBD.

Source: Editorial, A Case for Trade, Investor's Business Daily, September 14, 2006.

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For more on Trade Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=42

FMF Policy Bulletin/ 19 September 2006