Free Trade: Its Economic Gains and Political Losses

Modern free trade agreements are an increasingly complex mix of competing priorities. Among the topics they address are environmental standards, labor protections, intellectual property rights, and dispute resolutions—not to mention the relaxation of trade barriers. Due to the scope of these agreements, it is all but assured that everyone can find something to dislike and that garnering political and public support will be difficult. Despite these challenges, a poll by the Pew Research Center found that 51 percent of respondents think “trade agreements between the U.S. and other countries have been a good thing for the country.”

Trade liberalization not only forges stronger bonds with our trading partners, it also represents a significant portion of the U.S. economy. For example, in 2014 the “exports of goods and services were 13.4 percent of [U.S.] GDP,” according to economist Douglas Irwin. In other words, the United States exported over $2-trillion worth of goods and services that year alone.

Yet that is only half of the story. In the same year, American consumers and businesses chose to take advantage of the variety of products and price points offered by foreign companies to the tune of $2.8 trillion. Just like an individual, the United States sells what it produces well and buys what it needs. Through this process of specialization, which is enabled by trade, more goods are produced and higher standards of living are achieved globally.

Though the benefits of specialization have long been known, it is important to note that access to foreign goods and markets have, are, and will continue to be beneficial for American consumers and businesses. This is made evident by the World Bank’s recent assessment of studies examining the potential economic gains from pending free trade agreements, specifically the Trans-Pacific Partnership. The assessment found that “overall impacts for members [are] on the order of 0.8-1.8 percent of GDP.” Given these findings, it is clear that making economic growth a priority requires prioritizing trade liberalization.

In a few short weeks, the Charles Koch Institute will be hosting experts from across the country to discuss important foreign policy issues at a summit entitled Advancing American Security: The Future of U.S. Foreign Policy. Please join us on May 18 in Washington, DC, for an honest and open inquiry into our nation’s foreign policy, in the town where U.S. foreign policy takes shape.

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