Free Trade Regime on the Term Paper

  • Length: 13 pages
  • Sources: 1
  • Subject: Economics
  • Type: Term Paper
  • Paper: #10814487

Excerpt from Term Paper :

Future reductions in trade barriers across the world grant the American farmers, ranchers, manufacturers, and service providers a better access to the 95% of the world's customers. This would obviously lead to an even greater economic growth determined entirely by free trade. The United States economic growth is generated by the healthy export activity. The U.S. goods and services exports covered 10.45 of the GDP and 20% of overall growth of the U.S. economy in 2005. The manufacturing sector exports have increased up to 82% over the pat decade. Also, the services exports have doubled since 1994, $381 billion of total exports, with a $66 billion surplus in 2005. The agriculture sector is also flourishing due to exports, since one third of the U.S. acres is planted for export (Office of the United States Trade Representative, 2006).

Along with influencing the economic growth, free trade also created more and better jobs. The economic growth determined by free trade and economic gains from trade led directly to more, better, and higher paid jobs for the United States citizens. The job increase for each economy sector is directly proportional to that sector's individual growth. As a consequence, in the manufacturing sector the manufacturing exports support one sixth of all manufacturing jobs, reaching approximately 5.2 million jobs in the United States. In the agriculture sector the agriculture exports support approximately 926,000 jobs in the United States. Also, 80% of the total jobs in the United States are supported by services exports. However, the highest paid jobs in the United States seem to be the jobs supported by goods exports, an estimated 13% to 18% more than the U.S. national average. In California, over 700,000 jobs have been generated by the manufactured goods exports. 25% of all manufacturing jobs in Massachusetts and 20% of all manufacturing jobs in Michigan are supported by exports. Iowa is the United States' second largest agricultural products exporter, with exports valued at over $4 billion and exporting 180 foreign markets in 2005. Also, in-sourced jobs support 5.1 million Americans working for U.S. subsidiaries of foreign companies. For example, 225,000 of Pennsylvania employees are employed by foreign companies. 127,000 people in Tennessee and 71,000 people in Alabama are employed by foreign companies. It is expected that the future reductions in trade barriers will create greater exports, which will lead to the creation of more and higher paid jobs in the United States in the near future: "trade keeps our economy open, dynamic, and competitive, and helps ensure that America continues to be the best place in the world to do business" (Office of the United States Trade Representative, 2006).

Also, free trade generates a high level of prosperity: "American families benefit from trade and open markets every day. Trade delivers a greater choice of goods - everything from food and furniture to computers and cars - at lower prices" (the Office of the United States Trade Representative, 2006). The increased trade liberalization since 1945 led to $1 trillion higher annual incomes, $9,000 per household in he United States at the present moment. Annual benefits of $1,300-2000 for average American families are generated by NAFTA and the Uruguay Round in the 1990s. The future elimination of global trade barriers would annual incomes for the United States increased by an additional $500 billion and $4,500 per household.

The free trade activity also generates security for the United States citizens, as "trade builds International Partnerships for Security" (the Office of the United States Trade Representative, 2006). The security is influenced by the fact that free trade creates transparency, it counteracts corruption, it strengthens the rule of law, and also, it encourages economic integration by building prosperity partnerships for the United States. For example, the Central America-Dominican Republic Free Trade Agreement (CAFTA), strongly supports freedom, democracy, and economic reform. The United States President proposed on 9 May 2003 a United States-Middle East Free Trade Area within a decade, in order to determine economic growth and to expand opportunity in the Middle East.

But there is paradox involved in the United States trade situation: director Daniel Griswold of the Center for Trade Policy Studies, Cato Institute, stated that "the record U.S. trade deficit for 2006 was a drag on U.S. economic growth. The consensus reflects a basic assumption that growing imports to the United States displace domestic production, reducing growth of real gross domestic product. But the consensus on trade deficits and growth ignores the actual record of the U.S. economy in recent decades and the positive correlation of imports to domestic production" (2007).

The United States Commerce Department reported a record U.S. trade deficit of $763.6 million for 2006. This record trade deficit is considered by most economists to be threatening the United States' future economic development. The Free Trade Bulletin explains this paradox situation: it seems that the expansion of economy increases demand for domestic production and for imports also. In addition to this, it also requires more domestic investment as businesses seek to meet the increased demand and to capitalize on new investment opportunities. These investment opportunities that are increasing, attract foreign capital to the United States in order to support the investments that cannot be financed by domestic funds only. Then, the foreign capital inflows generate the current account deficit. The current account deficit is directly proportional with the net inflows of foreign capital, so that it accommodates the inflows. Therefore, the accelerated growth of the GDP generates increased domestic investments, inflows of foreign capital, and the current account deficit.

Free Trade Agreements' effects on the United States

The Office of the United States Trade Representative considers that the free trade agreements that the United States are part of have shown positive effects for the United States ever since each of these agreements came into effect (2005). The most important free trade agreements known to have already shown their benefits on the American workers, farmers, ranchers, and service providers are those with Chile, Singapore and Australia.

After NAFTA area, the United States-Central America-Dominican Republic Free Trade Agreement (CAFTA) represents the largest destination for U.S. exporters. Therefore, the exports of the United States will increase due to free trade agreements. The CAFTA Policy Brief shows that: the U.S. exports to Chile increased by 33.5% in 2004, so that the United States became Chile's most important trade partner; the U.S. trade surplus with Singapore tripled after the first year of the U.S.-Singapore FTA, reaching $4.3 billion; the U.S. trade surplus with Australia grew 31.7% up to $2.13 billion; the U.S. export to both Chile and Singapore grew $4 billion after the first year of the free trade agreement between these countries and the United States.

The U.S.-Chile FTA generated U.S. exports to Chile of $3.6 billion in 2004. The most important export sector to have increased is the vehicles and parts sector, that increased by 36%; also, the U.S. exports of sophisticated machinery increased 33% to over $1.1 billion (CAFTA Policy Brief, 2005).

The U.S.-Australia FTA's most important benefit is the fact that the agreement determined U.S. exports to Australia to increase 11.7% in the beginning of 2005, reaching $3.7 billion. The most important export sector for this agreement is agriculture, with increased exports up 20%, with large gains in pork, grapes and rice: U.S. pork exports to Australia increased 885% reaching $19 million in 2004. Also, the U.S.-Australia FTA had another very significant benefit for the United States: it improved the overall U.S. trade deficit situation, since the U.S. trade surplus with Australia increased by 31.7%, reaching $2.1 billion (CAFTA Policy Brief, 2005).

The U.S.-Singapore FTA also brought great benefits for the United States: after the implementation of the free trade agreement the U.S. exports to Singapore increased up to $19.6 billion, 18.4% higher than the exports of the previous year. The economic sectors show the highest increase percentage in the exports are: the it equipment sector up to 62%, the machinery and parts sector up to 24%, the minerals and fuel sector up to 86%, the furniture sector up to 99%, and the vehicles and parts sector up to 84% (CAFTA Policy Brief, 2005).

CAFTA is expected to expand its positive effects in the future: the U.S. exports in this region are expected to reach $15 billion annually; the U.S. trade deficit is expected to be reduced by $756 million due to CAFTA; the U.S. farm exports to the region will probably increase by $1.5 billion every year, as the American Farm Bureau Federation estimates. In addition to this, the National Association of Manufacturers expects a $1 billion increase in the U.S. manufactured goods exported to the region.

General advantages and disadvantages of free trade

Generally speaking, free trade's advantages are: the increased production, production efficiencies, benefits to consumers, foreign exchange gains, employment, and economic growth (Edge, 2007). Regarding the increased production, free trade helps the involved…

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