Events in Seattle last November set the stage for a contentious debate in Congress this year about U.S. membership in the World Trade Organization. This study is the first in a series that will examine the costs and benefits of the WTO to the United States and to the rest of the world. By encouraging trade liberalization, the WTO promotes more vigorous global competition among producers, leading to lower consumer prices, rising worker productivity, and higher living standards.
The argument that trade liberalization through the WTO has made Americans poorer contradicts the most obvious facts about the U.S. economy in the year 2000. During the last five years, living standards have been rising for low- and high-income workers alike. More than 80 percent of the jobs created since 1993 are in occupations that pay above the median wage. Figures on the alleged decline of real wages are misleading because they overstate inflation and do not include the growth of nonwage benefits.
Despite warnings about “deindustrialization,” manufacturing in America today is thriving. The resurgence of U.S. manufacturing comes against a backdrop of record imports. Since 1992, during a period in which the WTO and the North American Free Trade Agreement have both been in operation, the manufacturing output of the United States has risen by 42 percent.
America’s open economy has not led to an outward flow of capital to low-wage countries. The outward flow of investment to Mexico and China remains relatively small. In fact, 80 percent of foreign direct investment by U.S. manufacturing firms in 1998 was in other high-wage countries.
America’s trade deficit is the result, not of unfair trade barriers abroad, but of our continuing surplus of foreign investment. Trade liberalization through the WTO will not have a significant effect on the U.S. trade deficit in either direction.