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Press Release

    Going Global

    03/26/2002

    In recent years “globalization” has become a battle cry for the forces of big government. International gatherings such as the World Trade Organization meeting in Seattle or the recent European Union summit in Barcelona attract hundreds of thousands of protestors from around the globe. Union members and environmentalists man the picket lines with an amalgam of protestors rallying against a hodge-podge of social injustices. While it is difficult to discern a coherent vision among the polyglot of voices, one thing is clear: whatever the issue, the solution is more government and less free trade. This hostility towards increased exchange among nations ignores benefits that free trade bestows upon all nations.

    Globalization is nothing more than the increased exchange of ideas, goods, and services across the globe, and it has been occurring for centuries. Indeed, the rise of Western Europe drew heavily from technologies and knowledge originating in Asia and the Near East. From gunpowder and the magnetic compass to the mathematics underlying modern science, the West adopted much from other nations and cultures. Yet contemporary critics often frame the issue as imperialism in which developed nations extract the wealth of the rest of the world and exploit cheap labor while destroying local cultures with exports of a bankrupt western culture.

    Examining such concerns about globalization often unmasks a more self-interested agenda at work. Union members concerned about increased competition in a global marketplace and environmentalists pushing an aggressive environmental agenda seek to include clauses in international agreements that promote their interests. Likewise, politicians seeking to protect influential industries often use trade barriers as a means of reducing competition to the detriment of consumers. Recent efforts in the United States to protect the steel industry offer a clear example of these forces at work.

    Yet anti-globalization activities and restrictions on the flow of ideas and goods and services harm the U.S. economy and American consumers. It must be remembered that the United States is the largest trading nation in the world. In 2000, the value of U.S. trade in goods and services was $3.4 trillion—up almost 120 percent since 1990, according to the Office of the United States Trade Representative. In the United States, trade was roughly one-third of the GDP in 2000, and over the last 30 years, trade has expanded at a rate faster than the overall economy. Despite the concerns over job losses under NAFTA and trade liberalization in general, the 1990s saw U.S. manufacturing increase by more than 42 percent, creating more than 700,000 new manufacturing jobs.

    Expanded global markets provide consumers with a greater array of choices, and the increased competition of the global marketplace drives producers to improve their efficiency and keep prices low. Protectionist measures eliminate both of these outcomes. Consequently, consumers face higher prices on a smaller selection of goods and services, while inefficient industries have less pressure to improve their productivity. One study found that in 1990 protectionism cost U.S. consumers $70 billion. Removing tariffs on textiles and apparels alone would increase economic welfare in the United States by more than $10 billion according to the International Trade Commission. Moreover removing these tariffs would help the poorest 20 percent of Americans to a greater degree because they spend a higher proportion of their total income on clothing than upper and middle income Americans.

    Protecting industries through tariffs is costly on consumers. One study found that consumers pay, on average, $155,000 for every job “saved” in a protected industry. At the same time, such protectionist measures harm the U.S. economy as a whole by diverting resources away from our most productive sectors. Steel tariffs, for example, raise the cost of steel, harming automobile manufacturers and other steel consuming industries, which employ 10 times as many workers as the steel manufacturers. These productive sectors of the economy also benefit when trade opens new markets across the globe for their products. Expanding trade means more output, which means hiring more workers. In this way, global markets play to the economy’s strengths, as higher wages and increased job growth occur in the most productive sectors of the economy.

    Nonetheless, critics of free trade continue to claim that expanding free trade is simply exporting American jobs to countries with cheaper labor. Yet in the aftermath of NAFTA, employment grew in all three countries, with U.S. employment increasing by 7 percent. This should not be surprising. Nations engage in trade because it is mutually beneficial. If one country gained at the other’s expense, trade would not make sense. Furthermore, it takes more than cheap labor to entice companies to invest in a foreign country. In fact, more than 70 percent of U.S. overseas investment is in high-income countries. While labor may be cheap in developing nations, there may be significant investment risks as well. The same laws that thwart local businesses make it difficult for foreign firms to succeed. Higher income countries, on the other hand, tend to respect private property rights and the rule of law while having a predictable business environment.

    Environmentalists often view free trade as a “race to the bottom,” with multinational corporations locating in those nations that lack environmental restrictions. However, studies demonstrate that firms from high-income nations have higher environmental standards than local companies. And as trade expands and the local economy expands, more resources exist to address environmental concerns. Studies indicate that as income rises, so does environmental quality.

    Finally, it is important to note that trade restrictions harm developing nations as well. As noted, trade is mutually beneficial. Boycotts in the name of social justice often do more harm than good. For example, Tom Larsson relates a comment from economist Keith E. Maskus: “The celebrated French ban of soccer balls sewn in Pakistan for the World Cup in 1998 resulted in significant dislocation of children from employment. Those who tracked them found that a large proportion ended up begging and/or in prostitution.”. While it would be appealing to assume that children who are not working will be in school, it is important to realize that in many developing nations this option simply does not currently exist. As these nations become wealthier, education becomes a more attainable option, and research has shown that trade has a significant impact on economic growth in developing countries. One study by David Dollar found that as developing nations become more integrated into the global economy, they experience higher income growth, longer life expectancies, and improved educational opportunities.

    Throughout its history, the United States has been no stranger to the international arena. Trade is a large component of economic activity in this country and efforts to suppress or thwart trade have imposed significant costs on American consumers. In 2000, trade supported roughly one of every five manufacturing jobs in the United States and over 12 million jobs total. The United States economy is strong and more than able to compete in a global marketplace. Despite the protestations that surround discussions of increased globalization, it has been a dynamic force throughout the centuries. America has prospered through free trade, as have our trading partners. Expanding the global economy offers an opportunity to strengthen economic growth, lower consumer prices, and boost income and the quality of life throughout the world.