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Part 1 in an occasional series
What are the benefits of America’s free trade agreement (FTAs)? With debate over the renewal of Trade Promotion Authority (TPA) now underway in Washington, the Chamber is publishing this series of blog posts examining the benefits of the trade agreements that TPA makes possible. Here is the full report on the benefits of America’s free trade agreements.
America’s oldest free trade agreement (FTA) will celebrate its 30th anniversary this year. The U.S.-Israel FTA entered into force on September 1, 1985. Since that time, the United States has entered into an additional 14 FTAs covering 19 more countries. The 20 U.S. FTA partners are Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and South Korea.
In taking the measure of our past trade agreements, it’s worthwhile considering the basic premise on which such agreements are negotiated.
While the United States receives substantial benefits from trade, the international playing field is sometimes tilted unfairly against American workers. The U.S. market is largely open to imports from around the world, but many other countries continue to levy steep tariffs on U.S. exports, and foreign governments have erected other kinds of barriers against U.S. goods and services.
U.S. goods arriving in foreign markets face an average tariff of 5.9%, according to the World Economic Forum’s Global Enabling Trade Report 2014. That’s more than four times the U.S. level, but tariffs often average in the double digits in emerging markets, particularly for key U.S. manufactured goods and agricultural exports.
One of the report’s rankings gauges the level of tariffs that a country’s exporters face. Leading the pack as the country whose exporters face the lowest tariffs globally is Chile, with its extensive global network of FTAs.
While the report found the United States did well in a number of areas, the United States ranked a disastrous 130th out of 138 economies in terms of the “tariffs faced” by our exports overseas. In other words, American exporters face higher tariffs abroad than nearly all our trade competitors. It is also worth noting that tariffs are just part of the problem, as they are often found alongside a wide variety of non-tariff barriers that shut U.S. goods and services out of foreign markets.
One major reason American exporters are often at a disadvantage in key foreign markets is that so many other countries have negotiated FTAs with one another. According to the World Trade Organization (WTO), 398 bilateral or plurilateral FTAs are in force around the globe today, but, as noted, the United States has FTAs with just 20 countries. This means U.S. exporters are often among a minority paying tariffs to sell their wares in key markets.
No one wants to go into a basketball game down by a dozen points from the tip-off — but that’s exactly what American exporters do every day. Nor is the situation getting easier: There are more than 100 FTAs currently under negotiation among our trading partners.
At the same time, the benefits of imports are incontrovertible. Imports mean lower prices for American families as they try to stretch their budgets: Access to imports boosts the purchasing power of the average American household by about $10,000 annually. Companies’ imports of intermediate goods, raw materials, and capital goods account for more than 60% of all U.S. goods imports—lowering costs for manufacturers and other businesses and helping then hone their competitive edge.
The U.S. Chamber believes that trade policy must take into account the needs of Americans as both consumers and producers. Fairness should be our watchword: American workers, farmers, and companies must be allowed to operate on a level playing field when it comes to trade.
This is the principal rationale for FTAs—to generate economic growth, new exports, and good jobs through the mutual elimination of trade barriers and do so in a way that is fundamentally fair. On this score, U.S. FTAs have been a dramatic success for the United States—as they have been for our FTA partners.
Next time: How FTAs Boost Trade