WTO Membership Good for California, U.S. Economy

This article originally appeared in the The San Diego Union-Tribune on April 16, 2000.
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The anti-globalization protestors clogging the streets ofWashington this week blame many of the world's ills on the WorldTrade Organization and its goal of trade liberalization. Meanwhile,on Capitol Hill a vote is looming on a resolution that wouldrequire the United States to withdraw from the international body.If the resolution were to pass and become law, the biggest loserswould be American workers, families, and firms.

The WTO benefits the American economy by encouraging its 135member nations to lower their trade barriers and keep them down.Trade liberalization at home brings the dynamic blessings ofcompetition to the U.S. economy. It spurs innovation, controlscosts, and keeps downward pressure on prices. For consumers, trademeans lower prices, better quality, and wider variety, raising thereal value of their wages. For domestic producers, trade allowsaccess to lower-cost inputs and more sophisticated machinery. Andfor exporters, trade expands markets abroad, making possible largerproduction runs and cost savings through economies of scale.

The WTO has also played an important role in facilitating tradeliberalization in the rest of the world. Since the late 1940s,barriers against the free flow of goods and capital have beenfalling, with average global tariffs on manufactured goods downamong industrialized countries from an average of more than 40percent to under 4 percent today. The volume of world merchandisetrade today is 16 times the volume in 1950, a rate of growth threetimes 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 exportsfrom California include electronics and electrical equipment;industrial machinery and computer equipment; transportationequipment; instruments and related equipment; and agriculture, withthe top destination countries including Mexico, Japan, Canada,Korea and Taiwan.

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

Another prediction was that free trade would cause"deindustrialization," when in fact the past decade has witnessed arobust expansion of industrial output. Since 1992, during a periodin which the WTO and NAFTA have both been in operation, industrialproduction--which includes the output of U.S. mines, utilities, andfactories--has increased 37 percent. Manufacturing output by itselfhas risen even faster, by 42 percent.

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Contrary to what the critics of trade predicted, Americanindustry has not been losing ground, either in absolute terms orrelative to the rest of the world.

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

Contrary to what the critics of trade predicted, Americanindustry has not been losing ground, either in absolute terms orrelative to the rest of the world. America remains the world's topexporter of manufactured goods, with exports in 1998 worth $528billion. America's share of global manufacturing exports heldsteady in the 1990s at about 13 percent.

The predicted flight of capital to countries with lower costsand standards never materialized. In fact, during the past decadethe United States has been the world's largest recipient of foreigninvestment. Year after year the United States has run a net surplusin its capital account, with foreign savers investing more in theUnited States than American savers sent abroad. This inflow offoreign 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 beenthe rush of global capital into the safe and profitable haven ofthe United States.

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

In testimony before the Senate in February, Federal ReserveBoard chairman Alan Greenspan reminded senators that America'sopenness to imports and immigration has fueled the U.S. economy,prolonging our record expansion. The Fed chairman then went on towarn that, unless fears about trade and openness are addressed, "Ido think the forces against globalization can significantlyundercut this remarkable surge in prosperity that we areobserving."

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