WTO Report Card: America’s Economic Stake in Open Trade

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Events in Seattle last November set the stage for a contentiousdebate in Congress this year about U.S. membership in the WorldTrade Organization. This study is the first in a series that willexamine the costs and benefits of the WTO to the United States andto the rest of the world. By encouraging trade liberalization, theWTO promotes more vigorous global competition among producers,leading to lower consumer prices, rising worker productivity, andhigher living standards.

The argument that trade liberalization through the WTO has madeAmericans poorer contradicts the most obvious facts about the U.S.economy in the year 2000. During the last five years, livingstandards have been rising for low- and high-income workers alike.More than 80 percent of the jobs created since 1993 are inoccupations that pay above the median wage. Figures on the allegeddecline of real wages are misleading because they overstateinflation and do not include the growth of nonwage benefits.

Despite warnings about "deindustrialization," manufacturing inAmerica today is thriving. The resurgence of U.S. manufacturingcomes against a backdrop of record imports. Since 1992, during aperiod in which the WTO and the North American Free Trade Agreementhave both been in operation, the manufacturing output of the UnitedStates has risen by 42 percent.

America's open economy has not led to an outward flow of capitalto low-wage countries. The outward flow of investment to Mexico andChina remains relatively small. In fact, 80 percent of foreigndirect investment by U.S. manufacturing firms in 1998 was in otherhigh-wage countries.

America's trade deficit is the result, not of unfair tradebarriers abroad, but of our continuing surplus of foreigninvestment. Trade liberalization through the WTO will not have asignificant effect on the U.S. trade deficit in eitherdirection.

Daniel Griswold

Daniel T. Griswold is associate director of the Cato Institute�s Center for Trade Policy Studies.