Trade

Talking Points

  • U.S. trade volume reached a new high of $4.9 trillion in 2011, up 39 percent from 2008.
  • Countries that have the lowest trade barriers also have the strongest economies, the lowest poverty rates, and the highest average levels of per capitaincome.
  • The U.S. economy has generated over 19 million net new jobs since the North American Free Trade Agreement (NAFTA) took effect and 5.5 million net new jobs since China joined the World Trade Organization.
  • Because tariffs increase the cost of many inputs, they make it harder for U.S. companies to compete with foreigncompanies.
  • Congress should permanently phase out all tariffs on inputs used by U.S. producers. Imports such as steel for carmakers, wood for homebuilders, and sugar for candy manufacturers help these U.S. industries produce affordable, high-quality cars, homes, and food.

The Issue

When American patriots dumped crates of imported tea into Boston harbor rather than pay duties to the English Crown, they started a rebellion against taxes and protectionist trade measures that not only led directly to American independence, but also provided inspiration, then and now, for freedom-loving people around the world. While “cutting off our Trade” was high on the list of abuses cited against King George III in the Declaration of Independence, it was the genius of the U.S. Constitution, with its encouragement of free trade among the states, that truly laid the foundations for our economic success, in effect creating the world’s first continental free trade area.

Debates over trade restrictions have erupted from time to time during our history and have not always been resolved in favor of greater freedom, but the historical record is clear: When we have opted for freer trade, we have been rewarded with long periods of greater prosperity. As President Ronald Reagan observed:

The benefits of free trade are well known: It generates more jobs, a more productive use of a nation’s resources, more rapid innovation, and higher standards of living both for this nation and its trading partners. While a unilateral commitment to free trade benefits the Nation, Americans gain even more when U.S. trading partners also open their markets.

Many critics of U.S. trade agreements and of free trade in general assert that free trade destroys jobs and lowers wages, but the facts show otherwise: Countries that have the lowest trade barriers also have the strongest economies, the lowest poverty rates, and the highest average levels of per capita income.

The biggest threat to U.S. prosperity comes not from free trade, but from the decline in economic freedom in the United States. In 2010, for the first time ever, the United States fell from the ranks of the economically free in the Index of Economic Freedom, published annually by The Heritage Foundation and The Wall Street Journal. This reduction in freedom has been accompanied by a stagnant economy, persistently high unemployment, and lethargic economic growth.

Trade is the framework upon which American prosperity rests. What is needed is a return to the free trade policies that have created economic dynamism, which engenders continual innovation and leads to better products, new markets, and greater investment.


Recommendations

  1. Trade Promotion Authority (TPA). TPA has been a critical tool for advancing free trade and spreading its benefits to a greater number of Americans. Also known as “fast track” authority, TPA provides for expedited congressional consideration of certain types of free trade agreements negotiated by the President with foreign countries. Provided the President observes certain statutory obligations under TPA, Congress agrees to consider implementing those trade pacts without amending them. If Congress decides to approve TPA, it should:
    • Grant long-term (at least five-year or even permanent) renewal of TPA on its own merits and independent of a trade adjustment assistance program;
    • Insist on negotiating parameters that promote actual increases in international trade flows and guarantee reductions in tariff and non-tariff barriers to trade and investment;
    • Oppose any emphasis in TPA legislation on the promotion of exports over imports in recognition of the importance of both in increasing American jobs and prosperity;
    • Resist imposing any special sectoral or industry-specific requirements, including in areas such as environmental and labor standards; an
    • Specify that the procedure for approving trade agreements applies only to the agreements and the specific legal changes necessary to implement them, not to extraneous issues.2

  2. Trans-Pacific Partnership (TPP). The proposed Trans-Pacific Partnership can be a major step toward building a free trade area in the Asia–Pacific region. For the U.S. to benefit economically, the TPP must be a high-quality agreement that moves market-oriented liberalization forward on multiple fronts. These should include state-owned enterprises, intellectual property, and services liberalization. A sound TPP will also reinforce American political leadership in the Asia–Pacific region and around the world, demonstrating that the United States will continue to make the decisions necessary to remain fully engaged in the global economy for the cause of open markets.
  3. Transatlantic Trade and Investment Partnership (TTIP). Congress should encourage negotiators to pursue a trade deal with the European Union (EU) that results in a true free trade agreement, not a new cross-Atlantic regulatory regime. In addition to reducing tariff and non-tariff trade barriers, negotiators should embrace mutual recognition of each region’s standards. If a successful agreement is reached, it should apply to EU member states both collectively and individually.
  4. U.S. Tariff Cuts. Congress should permanently phase out all tariffs on inputs used by U.S. producers. Imports such as steel for carmakers, wood for homebuilders, and sugar for candy manufacturers help these U.S. industries produce affordable, high-quality cars, homes, and food. Because tariffs increase the cost of many inputs, they make it harder for U.S. companies to compete with foreign companies. In some cases, U.S. businesses have even been forced to relocate to countries where tariffs on inputs are lower than they are in the United States. U.S. trade policy should make it easier for companies to operate here, not drive them out of the country.

  5. Miscellaneous Tariff Bills (MTB). In the past, Congress has engaged in targeted, short-term tariff cuts through “miscellaneous tariff bills.” This process is open to abuse because it requires companies that want a tariff cut to ask their legislator to introduce a specific bill on their behalf. Miscellaneous tariff bills are prohibited under internal congressional rules that ban earmarks. A better approach would be to permanently eliminate all tariffs on inputs used by U.S. producers.

Facts & Figures

  • In the United States, trade volume reached a new high of $4.9 trillion in 2011, up 39 percent from 2008. Since 2002, U.S. trade in goods and services has grown at a fast pace, increasing from 23 percent of GDP to 32 percent of GDP.
  • A comparison of the countries that have the best trade scores in the 2014 Index of Economic Freedom with those that have the worst scores demonstrates the importance of trade freedom. Countries with the most trade freedom have higher per capita incomes, lower incidences of hunger in their populations, and cleaner environments.

  • Headlines with assertions like “U.S. Economy Lost Nearly 700,000 Jobs Because of NAFTA” and “Growing U.S. Trade Deficit with China Cost 2.8 Million Jobs Between 2001 and 2010” are not uncommon. In reality, however, the U.S. economy has generated over 19 million net new jobs since the North American Free Trade Agreement (NAFTA) took effect in 1994 and 5.5 million net new jobs since China joined the World Trade Organization in 2001.

Selected Additional Resources

Heritage Experts on Trade


  • Kim R. Holmes, Ph.D.

    Distinguished Fellow


  • Anthony Kim

    Senior Policy Analyst, Economic Freedom


  • Ambassador Terry Miller

    Director, Center for International Trade and Economics and the Mark A. Kolokotrones Fellow in Economic Freedom


  • Bryan Riley

    Jay Van Andel Senior Policy Analyst in Trade Policy


  • James Roberts

    Research Fellow For Economic Freedom and Growth

To talk to one of our experts, please contact us by phone at 202-608-1515 or by email.