http://www.philly.com/mld/philly/business/11872720.htm

Posted on Sun, Jun. 12, 2005

The Economy | What does U.S. get from free trade?

By Andrew Cassel

Inquirer Columnist

It's been a tough spring for globalization.

Everywhere you look, progress toward a more open and trade-friendly world seems to be bogging down.

CAFTA, President Bush's proposed free-trade treaty with Central America, faces long odds in Congress. The usual anti-trade forces - labor unions and big corporations in protected industries such as sugar and textiles - are using their combined muscle to try to sink the treaty, and they may well succeed.

Meanwhile, relations between the United States and China are growing testier, despite - or maybe because of - our increasing economic interdependence. American officials grow ever more insistent that China change its currency policy, although it's far from clear that such a change would do much to alter the balance of trade between us.

And in Europe, doubts are growing about the future of the euro. Since French and Dutch voters rejected a proposed European Union constitution two weeks ago, the value of the continent's common currency has fallen.

Some analysts are even suggesting that one or more of the 12 euro-using countries might even go back to using lira, marks or pesetas.

Not that such approach-avoidance conflicts are a new phenomenon.

Trade has always been a two-edged sword, offering new benefits and opportunities at the same time as it upsets established patterns of work and commerce.

The problem for those who believe in globalization has always been that its benefits are harder to track than the disruptions.

Dropping a trade barrier or improving links between nations typically makes most people somewhat better off, but in ways that are hard to dramatize. Prices might fall, the quality or variety of goods might improve.

However, the same movement toward open trade will likely have a smaller but more visible downside.

A plant might close, an industry might shift abroad, and the pain of adjustment will be concentrated in a few people or regions, in ways that are easy to see and sympathize with.

That's why some recent research into the value of freer trade is so important.

In a new paper, trade analysts Gary Hufbauer and Paul Grieco estimate how much the United States has gained since the days just after World War II. Back then, they note, the average tariff on imports was 40 percent; today it averages 4 percent.

"After a half-century of steady liberalization, it is fair to ask, what do Americans have to show?" they write.

"As it turns out, quite a lot."

All in all, they calculate the United States earns an extra $1 trillion per year because of freer trade. That's how much bigger our economy is because we lowered barriers, opened markets, and allowed goods, services and people to move across our borders in both directions.

It equals roughly 10 percent of our current gross domestic product, and it translates into an average $10,000 per year in extra income per household. Of course, any estimate of something so large and long-running is bound to be rough.

The researchers actually used four different methods and arrived at figures ranging from 7.3 percent to 13.2 percent of economic output.

So the numbers are soft, but they're all large. Any way you slice it, we've benefited substantially from opening up to trade.

Of course, some have suffered as well. Workers lost jobs, companies failed, and some towns emptied out when trade rules changed. No one can deny it.

The cost of all that isn't small either. Hufbauer and Grieco guess that the overall loss of income to those who've been hurt by freer trade could be as much as $54 billion per year.

But balance it out: $54 billion in losses vs. $1 trillion in gains.

Isn't that a trade worth taking?