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The Benefits of International Trade
America cannot have a growing economy or lift the wages and incomes of our citizens unless we continue to reach beyond our borders and sell products, produce, and services to the 95% of the world’s population that lives outside the United States.
More than 41 million American jobs depend on trade, and trade is critical to the success of many sectors of the U.S. economy. Manufacturing is the sector that exports the most, with more than $1.4 trillion worth of exports in 2014. The U.S. Department of Commerce estimates that exports of manufactured goods directly support approximately 6 million U.S. factory jobs—roughly half of all manufacturing employment.
According to economic data from the Federal Reserve Bank of St. Louis, U.S. real manufacturing output has risen by nearly 80% over the past 25 years. This represents the continuation of a long trend: U.S. manufacturing value-added has grown eightfold since 1947 in real terms.
Vast productivity gains relating to increased use of automation and information technologies have helped U.S. manufacturers retain and in many areas enhance their global competitiveness in recent years, even as the number of Americans employed in manufacturing has declined since its peak in 1979.
U.S. exports of services are also booming, topping $716 billion in 2015 and achieving a trade surplus in services of $227 billion, according to the U.S. Department of Commerce. The United States is by far the world’s largest exporter of services, and America’s globally competitive service industries—including audiovisual, banking, energy services, express delivery, information technology, insurance, and telecommunications—benefit immensely from opportunities abroad.
American farmers and ranchers also depend on exports. The same is true for America’s farmers and ranchers. One in three acres on America’s farms is planted for exports. For many crops, such as wheat or almonds, more than half is sold abroad. U.S. agriculture is so productive there’s no way Americans could consume this bounty alone.
Amid a renewed focus on boosting U.S. exports, it is important to bear in mind that imports benefit Americans as well. They bring lower prices and more choices for American families as they try to stretch their budgets. Companies also depend on imports for raw materials and competitively priced inputs.
Imports give us access to products that would not otherwise be available—such as fresh fruit in the winter. 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 them hone their competitive edge.
Indeed, tremendous benefits have flowed from U.S. free-trade agreements (FTAs), which cover 20 countries. These countries represent approximately 6% of the world’s population outside the United States, and yet last year these markets purchased nearly half of all U.S. exports, according to the U.S. Department of Commerce. In other words, U.S. FTAs do an outstanding job making big markets even out of small economies.
The trade balance is a poor measure of the success of these agreements, but deficits are often cited by trade skeptics as a reason why the United States should not negotiate free trade agreements. However, with regard to manufactured goods, the United States ran a cumulative trade surplus with its trade agreement partner countries of more than $280 billion over the past eight years (2008-2015), according to data from the U.S. Department of Commerce. The United States also has global trade surpluses in services and agricultural products.
Together, these facts reveal that the U.S. trade deficit arises from trade in manufactured goods with countries where the United States has no trade agreement in place. It’s ludicrous to say trade agreements are contributing to the deficit.
Also overlooked in the U.S. trade debate is the fact that 98% of the roughly 300,000 U.S. companies that export are small and medium-sized businesses, and they account for one-third of U.S. merchandise exports, according to the U.S. Department of Commerce. The number of small and midsized firms that export has risen about threefold over the past two decades.
In the end, we cannot turn our back on international trade. It is an inevitable part of the world in the 21st century. We simply need our elected leaders to prioritize initiatives to open foreign markets so that U.S. companies can sell more of our goods and services overseas. Trade can provide a path to jobs and prosperity if we have the courage to seize it.