Commentary

WTO Membership Good for California, U.S. Economy

By Daniel Griswold
This article originally appeared in the The San Diego Union-Tribune on April 16, 2000.

The anti-globalization protestors clogging the streets of Washington this week blame many of the world’s ills on the World Trade Organization and its goal of trade liberalization. Meanwhile, on Capitol Hill a vote is looming on a resolution that would require the United States to withdraw from the international body. If the resolution were to pass and become law, the biggest losers would be American workers, families, and firms.

The WTO benefits the American economy by encouraging its 135 member nations to lower their trade barriers and keep them down. Trade liberalization at home brings the dynamic blessings of competition to the U.S. economy. It spurs innovation, controls costs, and keeps downward pressure on prices. For consumers, trade means lower prices, better quality, and wider variety, raising the real value of their wages. For domestic producers, trade allows access to lower-cost inputs and more sophisticated machinery. And for exporters, trade expands markets abroad, making possible larger production runs and cost savings through economies of scale.

The WTO has also played an important role in facilitating trade liberalization in the rest of the world. Since the late 1940s, barriers against the free flow of goods and capital have been falling, with average global tariffs on manufactured goods down among industrialized countries from an average of more than 40 percent to under 4 percent today. The volume of world merchandise trade today is 16 times the volume in 1950, a rate of growth three times faster than the growth of global output.

For California, the WTO has helped to keep markets open for the $105 billion in goods exported from the state in 1998. Top exports from California include electronics and electrical equipment; industrial machinery and computer equipment; transportation equipment; instruments and related equipment; and agriculture, with the top destination countries including Mexico, Japan, Canada, Korea and Taiwan.

Critics of the WTO claim that the U.S. economy has been harmed by more open markets, but the record of the last five years proves just the opposite. For example, predictions that trade would turn us into a nation of hamburger flippers have proven to be ludicrous. Since the passage of NAFTA and the Uruguay Round Agreement, the fastest-growing sectors of service employment are on the high end: According to a study by the U.S. Department of Labor, 81 percent of the new jobs created since 1993 have been in industry/occupation categories paying above-median wages, and 65 percent are in the highest-paying third of categories.

Another prediction was that free trade would cause “deindustrialization,” when in fact the past decade has witnessed a robust expansion of industrial output. Since 1992, during a period in which the WTO and NAFTA have both been in operation, industrial production—which includes the output of U.S. mines, utilities, and factories—has increased 37 percent. Manufacturing output by itself has risen even faster, by 42 percent.

————————————————————————————————————————

Contrary to what the critics of trade predicted, American industry has not been losing ground, either in absolute terms or relative to the rest of the world.

————————————————————————————————————————

Consider the example of the U.S. auto industry. Domestic output of motor vehicles and parts has shot up 51 percent since 1992. Total domestic output of cars and light trucks reached 12.6 million in 1999, a record high and up more than 3 million since 1992. Strong domestic demand for new cars, light trucks, and sport utility vehicles has helped to boost profits and employment in the industry. In 1998 domestic automobile employment approached 1 million, an increase of 177,000 since 1992. Industry profits were healthy in 1999.

Contrary to what the critics of trade predicted, American industry has not been losing ground, either in absolute terms or relative to the rest of the world. America remains the world’s top exporter of manufactured goods, with exports in 1998 worth $528 billion. America’s share of global manufacturing exports held steady in the 1990s at about 13 percent.

The predicted flight of capital to countries with lower costs and standards never materialized. In fact, during the past decade the United States has been the world’s largest recipient of foreign investment. Year after year the United States has run a net surplus in its capital account, with foreign savers investing more in the United States than American savers sent abroad. This inflow of foreign capital has kept interest rates down, built new factories, and brought new technology and production methods to our economy. If there has been any giant sucking sound since 1993, it has been the rush of global capital into the safe and profitable haven of the United States.

America’s membership in the WTO has been a double blessing for the United States. The liberalization of markets abroad has created export opportunities for U.S. companies, raising profits, employment, and wages in industries that serve expanding global markets. Meanwhile, WTO membership exerts pressure on the U.S. government to keep our own market open to the global economy, which gives American families access to a wider range of affordable goods and services, thus raising the real value of our paychecks.

In testimony before the Senate in February, Federal Reserve Board chairman Alan Greenspan reminded senators that America’s openness to imports and immigration has fueled the U.S. economy, prolonging our record expansion. The Fed chairman then went on to warn that, unless fears about trade and openness are addressed, “I do think the forces against globalization can significantly undercut this remarkable surge in prosperity that we are observing.”

By encouraging governments around the world to liberalize trade, the WTO enhances the individual freedom as well as the material well-being of Americans.

Daniel Griswold is the director of the Center for Trade Policy Studies at the Cato Institute.