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RILEY: From breadbasket of the world to debt-basket
Question of the Day
American exports are booming — if you consider U.S. Treasury securities sold to foreigners to be exports. Unfortunately, sales of debt are not counted as exports. Even more unfortunately, large budget deficits have a negative impact on real U.S. exporters.
Just how large a trade problem are the deficits? If Treasury securities were actual commodities, they would constitute one of our biggest exports. Last year, the value of Treasury bonds “exported” by Washington exceeded that of all exported agricultural products, cars and civilian aircraft combined.
Indeed, foreign sales of Treasury securities had nearly three times the value (294 percent) of total agricultural exports. It may now be more accurate to call the United States the world’s debt-basket than the world’s breadbasket.
So, how does this affect exporters? When people in other countries buy U.S. Treasury securities, they have less money left to spend on U.S. private-sector goods and services.
If politicians are serious about boosting U.S. exports, their top priority should be to restrain excessive federal spending. This would reduce the budget deficit, resulting in fewer Treasury bond “exports” and more opportunities for U.S. private-sector producers to sell their goods and services abroad.
But there is more that could be done to boost trade. Indeed, there is plenty of room for improvement in trade policy — not just in Washington, but in capitals throughout the world.
The worldwide financial crisis has put a damper on the free-trade movement. An advance report on trade freedom, released last week by the Heritage Foundation from the forthcoming 2013 Index of Economic Freedom, shows that decades of global progress on free trade is now unquestionably stalled.
Worldwide, the average “trade freedom” score remained unchanged from the 2012 Index, compiled by the Heritage Foundation and The Wall Street Journal. The good news is that the average score (74.5 of a possible 100) remains the second-highest registered since Heritage began tracking it in 1995. But momentum is important to any movement. Once stalled, it’s harder to get moving again, and there’s always the possibility that it might start going in the wrong direction.
That would be most unfortunate. Comparing the countries with the best trade scores with those that have the worst scores demonstrates the importance of trade freedom. Countries with the most trade freedom have higher per-capita incomes, lower incidences of hunger and cleaner environments.
Many countries understand this, and good things are happening around the globe. For example, Canada is unilaterally eliminating tariffs on more than 1,500 imports used by the country’s manufacturers. U.S. politicians who want to boost manufacturing should take note.
In Africa, there is interest in a continentwide free-trade area modeled on the North American Free Trade Agreement (NAFTA). One study found that such a trade deal could boost intra-African trade by as much as 22 percent.
What else could be done to reduce global trade barriers? Perhaps the most critical missing ingredient is U.S. leadership. Continued U.S. trade barriers on products like sugar, shoes and clothing weaken both the U.S. economy and the credibility of U.S. trade negotiators when they ask other countries to reduce their barriers to American-made exports.
U.S. trade policy is particularly costly to those who can least afford it. Tariffs on shoes and clothing cost American families more than $12 billion in 2011. These tariffs are regressive taxes that penalize low-income families, since items such as clothing take up a bigger share of their budgets. U.S. tariff rates on products such as tennis shoes, jeans and T-shirts are often in the double digits.
The Heritage Foundation’s 2013 rankings of trade freedom show that people in the U.S. and around the world benefit when their governments allow them to trade freely. Reducing trade barriers in the U.S. and in other countries would generate beneficial results including less poverty and greater prosperity for the 7 billion people across the globe.
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