Advancing Trade in the U.S. – Clear Upsides, Especially for Entrepreneurs and Small Businesses

By SBE Council at 24 April, 2015, 1:16 pm

by Raymond J. Keating-

As bipartisan trade legislation gains momentum in Congress, the Council on Foreign Relations (CFR) recently published a backgrounder titled The Future of U.S. Trade Policy. It’s handy publication that offers some good information regarding trade and the U.S. economy.

A few points worth highlighting here:

First, the CFR report provides a nice summary of trade policy from World War II to current day. An interesting point on the period of just after WWII to the mid-1980s: “Over those four decades, global import tariffs on goods fell sharply, from an average of over 30 percent to under 5 percent.”

Second, the current status of U.S. trade policy is summed up: “Facing a stalled WTO process, U.S. policymakers have focused instead on completing smaller regional and bilateral trade and investment deals. The 1994 North American Free Trade Agreement (NAFTA) further integrated the U.S. economy with those of Canada and Mexico. In addition to recent bilateral deals with Colombia, Panama, and South Korea, the United States has concluded free trade agreements (FTAs) with twenty countries. The Obama administration has sought to advance U.S. trade interests through its 2010 National Export Initiative, a package of trade advocacy and export financing measures, as well as the two pending deals under negotiation: the Asia-focused Trans-Pacific Partnership (TPP) and the U.S.-European Union Transatlantic Trade and Investment Partnership (TTIP).”

Third, regarding the TPP and TTIP, CFR makes an important point as to the focus of these proposed accords: “The TPP and TTIP are both mega-regional deals focusing on so-called ‘next-generation’ trade issues such as agriculture, services, intellectual property, and ‘behind-the-border’ issues of domestic liberalization… Since traditional tariffs are already low, TPP focuses on a suite of reforms that include liberalizing protected sectors, streamlining customs and regulations, strengthening intellectual property protections, promoting competitive and transparent business laws, and enforcing labor and environmental standards… Officially launched in 2013, the TTIP negotiations focus largely on improving regulatory cooperation between the two sides. Supporters argue this will reduce costs for businesses and thus boost growth and lower consumer prices. Another priority is to ensure equal legal treatment for investors.”

Fourth, CFR touches on some of the challenges of moving trade agreements forward, as well as granting trade promotion authority, in Congress, and how TPP and TTIP fit into Obama administration foreign policy. For example, CFR Senior Fellow Edward Alden “says the TPP, as the biggest U.S. initiative in Asia, has acquired a major geopolitical dimension. ‘Asian countries are all looking to this as a symbol of whether the U.S. is committed to the East Asia region,’ he says. ‘If it fails, it will be seen as a significant U.S. retreat from engagement with Asia.’ Others, like the Financial TimesAsia editor David Pilling, say that the TPP, if mishandled, has the potential to alienate the United States’ Asian allies.”

Fifth, and finally for our purposes, CFR highlights the potential economic benefits of the TTP and TTIP: “Some economists argue that TPP and TTIP would have a significant positive impact on the U.S. economy. In theory, giving manufacturers a more level playing field in Asia would boost U.S. exports, while lower-priced imports and the gains in productivity arising from increased competition would be a boon for consumers. The Peterson Institute has released research showing that the TPP would produce annual income gains of $78 billion for the United States. When it comes to the TTIP, the European Commission estimates (PDF) that the deal would add over $100 billion to the U.S. economy and $152 billion to the European economy every year.”

The CFR report also takes note of arguments put forth against free trade agreements, largely coming from labor unions and leftist economists whose arguments are off base, as well as misguided concerns about the U.S. trade deficits. For counterpoints on such matters, read SBE Council’s recent analyses titled Economists Who Get It Wrong – and Right – on Trade and IP and Some Serious Trouble with Trade, and It’s Not About Deficits. 

It is both positive and significant that Congress is moving forward on granting President Obama trade promotion authority (TPA). As SBE Council noted in its letter of support for bipartisan legislation that would do this “Free trade agreements that lower trade barriers and protect intellectual property expand opportunities for America’s entrepreneurs, and help boost economic growth and the creation of high-paying jobs. …reducing the costs of reaching 96 percent of the world’s consumers who live outside the United States is a tangible and needed advantage for U.S. small businesses and their workforce.” TPA is necessary as it establishes clear rules for trade negotiations with and provides confidence to our trade partners.

Through the expansion of opportunity, lowering trade barriers is good news for U.S. entrepreneurs, small businesses and workers.

Related Content: Bipartisanship on Trade

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship and it is available free on SBE Council’s website here.