The Benefits of Free Trade: A Guide For Policymakers



Denise H. Froning | The Heritage Foundation

International trade is the framework upon which American prosperity rests. Free trade policies have created a level of competition in today’s open market that engenders continual innovation and leads to better products, better- paying jobs, new markets, and increased savings and investment. Free trade enables more goods and services to reach American consumers at lower prices, thereby substantially increasing their standard of living.

Moreover, the benefits of free trade extend well beyond American households. Free trade helps to spread the value of freedom, reinforce the rule of law, and foster economic development in poor countries. The national debate over trade-related issues too often ignores these important benefits.

The positive effects of an open market are clearly evident in the stellar growth of the U.S. economy over the past decade. Since 1990, the U.S. economy has grown by more than 23 percent, adding more than $2.1 trillion to the nation’s gross domestic product (GDP) and raising the wealth of the average American consumer by more than $5,500.

The economy responded well to the expansion of trade that occurred after the signing of the North American Free Trade Agreement (NAFTA) in 1993 and the establishment of the World Trade Organization (WTO) in 1995 as a forum for settling trade disputes. For example:

  • Since 1990, imports of real goods and services have increased 115 percent.
  • The number of full-time jobs has increased by 13.4 percent since 1991. The share of the labor force that works part-time because of an inability to find a full-time job is less than 3 percent.
  • As of July 2000, the unemployment rate had hovered within one-tenth of a point from 4 percent for almost a year—the lowest rate in 30 years.
  • The stellar record of growth has continued in the United States at the end of the decade as well: Between 1998 and 1999 alone, total employment increased by 2 million.

To be sure, many more policymakers today acknowledge the benefits of free trade than when Congress passed the Tariff Act of 1930 (the Smoot–Hawley Act). The devastation wrought by these protectionist tariffs led successive U.S. administrations to support free trade after World War II.

Their grand vision of a world comprised of nations at peace who traded freely among them- selves for the prosperity of all has animated U.S. foreign policy and invigorated efforts to facilitate the opening of markets in every region.

A growing number of countries continue to share the benefits of America’s emphasis on trade. As noted in a recent report by the International Financial Institution Advisory Commission chaired by Allan H. Meltzer, a former member of the President’s Council of Economic Advisers and Professor of Political Economy at Carnegie Mellon University:

The Congress, successive administrations, and the American public can be proud of these achievements. The United States has been the leader in maintaining peace and stability, promoting democracy and the rule of law, reducing trade barriers, and establishing a transnational financial system.

Americans and their allies have willingly provided the manpower and money to make many of these achievements possible. The benefits have been widely shared by the citizens of developed and developing countries. The dynamic American economy benefited along with the rest of the world. Growth of trade spread benefits widely.

Per capita consumption in the United States tripled. As in other countries, higher educational attainment, improved health services, increased longevity, effective environmental programs, and other social benefits accompanied or followed economic gains.

Despite these achievements, the United States, with one of the world’s most open markets, continues to apply barriers to trade—most notably tariffs and quotas in the apparel and textile industry and in agriculture—that increase the cost of goods for consumers and harm people in developing countries who rely on this trade for their meager incomes.

In this respect, the Trade and Development Act of 2000 (P.L. 106–200) enacted on May 18, 2000, by lowering some of these barriers to trade, is a step in the right direction.

Congress and the President should take every opportunity to articulate the benefits of trade to the American people and to expand international trade by any possible means, such as the unilateral lowering of trade barriers, the forging of regional and bilateral trade agreements, and working within international trade forums like the WTO.

Ultimately, the straightforward and tangible benefits that derive from each of these steps will help both hardworking American families and impoverished people around the world.


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