International Trade and Investment

Trade Liberalization: A Key Contributor to the Strength of the U.S. Economy

   Increased international trade has raised real incomes, restrained prices, introduced greater product variety, spurred technological advances and innovation, and raised living standards in the United States. Studies have estimated that the annual payoff from U.S. trade and investment liberalization to date, including from the Kennedy Round, the Tokyo Round, the Uruguay Round, the North American Free Trade Agreement and other free-trade agreements, is up to $1.5 trillion. These gains arise through many channels: higher long-term levels of commerce in goods and services that come from trade and investment liberalization; increased product variety; more efficient allocation of resources; and better transportation and communication technology. Some economists have conjectured that trade liberalization alone has accounted for about half of these gains, which implies that the annual income gain from trade liberalization to date is over $2,500 per capita, or $10,000 for an average American family of four. Existing studies suggest that U.S. incomes could rise further by approximately $590 billion per year by moving all the way to global free trade in goods and services.

   International trade in goods and services exposes firms to foreign competition and reduces their ability to charge high markups above production costs. International trade also increases the variety of goods available such as silk sweaters from China, wine from Australia, and winter blueberries from Chile. Consumers value variety and one study estimated that the U.S. economic value of increased varieties through imports over the past three decades is equivalent to $350 billion per year, or 2.8 percent of gross domestic product (GDP).

   Engagement in the global economy through increased trade has contributed to rising average living standards in the United States. Research shows that firms engaged in the international marketplace tend to exhibit higher rates of productivity growth and pay higher wages and benefits to their workers than domestically oriented firms. Economists agree that the most important determinant of living standards in a country is the average level of productivity, or output per worker.

   A free and open international trade regime is vital for a stable and growing economy, both here at home and throughout the world. The United States will continue to work aggressively toward multilateral trade liberalization through the World Trade Organization's Doha Development Agenda negotiations. The prospects for these negotiations to produce significant benefits for this country and our trading partners, particularly developing countries, demand that we promptly reach a balanced and ambitious outcome.