- The Washington Times - Saturday, May 17, 2003

There are numerous storm clouds over the trade horizon that may not be worrisome individually, but cumulatively could drown global and hemispheric trade negotiations. For the most part, the U.S. economy as a whole won’t be damaged by a standstill in these talks. Still, it would be a mistake to defer trade liberalization for some later date.

U.S. statistics tell an interesting story, not only about the past benefits of trade but about potential future benefits. Last year, U.S. exports totaled almost 10 percent of the U.S. economy, or $1 trillion. While this number may not seem too imposing, its growth over the years is noteworthy. In 1970, U.S. exports totaled just 5.5 percent of the economy. Imports are also part of the story, providing inputs for U.S. exports more cheaply than they can be produced domestically. Half of America’s imports are bought by business, as inputs, intermediate products, raw materials, etc. for a final U.S. product. Taken together, U.S. exports and imports were equivalent to about 23.5 percent of America’s gross domestic product (GDP) last year, or $2.5 trillion, up from 10.8 percent in 1970. The United States remains the world’s top exporter, and its share of global exports has long remained steady, at about 11 percent to 12 percent. China’s share is about 5 percent.

Though critics of trade equate imports with lost jobs, U.S. production has tripled since the 1960s. Also, U.S. exports tend to rise in tandem with imports as a result of a strong economy. If trade barriers continue to come down, U.S. exports could continue to grow, particularly if the dollar continues to weaken.

Unfortunately, ongoing trade disputes between the United States and the European Union could undermine global trade talks, which are already stalled by disagreements over trade-distorting agricultural subsidies. The problems in global agriculture talks are undermining progress in negotiating a free-trade zone in the Americas.

On the U.S.-E.U. front, the United States challenged Europe’s moratorium on genetically modified food on Tuesday in the World Trade Organization (WTO). Last week, the WTO gave the European Union the right to slap on a record $4 billion in retaliatory tariffs for America’s failure to change a tax law, called the Foreign Sales Corporation Act, that gives U.S. companies with foreign subsidiaries a tax break and is geared to benefit American exporters. Europe has said it will postpone applying the sanctions until the end of September to see if Congress changes the law. Also, the WTO said earlier this month that U.S. tariffs on some steel imports violate trade rules.

These escalating disputes will damage the negotiating environment for global trade talks. Already, these negotiations are bogged down by disagreements over agricultural subsidies, with Europe still unwilling to dismantle these trade-distorting policies to the satisfaction of the United States and most poor and developing countries.

Meanwhile, the logjam over agricultural subsidies is imperiling negotiations to create a free-trade zone in the Americas by the ambitious Jan. 2005 deadline. Brazil and other countries in the Americas want agricultural subsidies and other key sensitive sectors to be on the table for negotiation, but the United States wants subsidies to be resolved on a global, not hemispheric, scale. Given the U.S. position, Brazil has said it is willing to wait until 2007, if need be, to finalize an accord for an Americas-wide free-trade zone.

These setbacks imply a sizeable reduction in export growth opportunities for the United States, just when a weak dollar could imply a growth in exports. But there is usually a time lag of roughly one year before a weak currency leads to export growth. Yet the cost for European nations is even higher, since they have smaller domestic markets and are more dependent on trade. Exports are about 27 percent of France’s overall economy, 29 percent of Germany’s, 26 percent of the United Kingdom’s and 25 percent of Italy’s. The world’s big and medium-size economies stand to benefit from resolving disagreements over trade as quickly as possible.

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