In recent months, America’s economy has shown signs of great strength — and worrying weakness. Unemployment has hit new lows, but inflation has soared to the highest level in decades. Consumer and business sentiment has been whipsawed.
But on one front — trade — America is standing still. And that means we risk falling behind.
It’s been a decade since the United States added to the list of 20 countries where we have trade agreements in force. Meanwhile, other economies are racing to ink new trade deals.
If the U.S. continues to stand still, we’ll lose export sales and the domestic jobs they support – not to mention weakening strategic alliances.
Will America respond? This series will take a deep dive into these issues, starting with this assessment of the competitive challenge facing the U.S. economy.
It’s plain the U.S. receives substantial benefits from trade, but the international playing field is often tilted unfairly against American companies and workers. The U.S. market is largely open to imports from around the world, with the exception of select highly-protected products (e.g., sugar, steel) and goods from China (subject to Sec. 301 tariffs and other duties).
However, many other countries continue to levy steep tariffs on U.S. exports, and foreign governments have erected other kinds of barriers against U.S. goods and services.
In fact, “U.S. businesses must overcome an average tariff hurdle near 6.8 percent and countless non-tariff measures to serve the roughly three-quarters of world purchasing power and more than 95 percent of world population that resides outside America’s border,” according to the White House Council of Economic Advisors (The Economic Benefits of U.S. Trade, May 2015). Further, tariffs often average in the double digits in the emerging markets of greatest interest to American exporters, particularly for key U.S. manufactured goods and agricultural exports.
According to the World Economic Forum’s Global Enabling Trade Report, the United States ranks a disastrous 130th out of 136 economies in terms of the “tariffs faced” by our exports overseas. In other words, American exporters face higher tariffs abroad than nearly all our trade competitors.
Like the CEA, this report surprisingly finds “tariff barriers abroad” are the most problematic factor facing U.S. exports, but tariffs are often found alongside a wide variety of non-tariff barriers that also shut U.S. goods and services out of foreign markets.
One major reason American exporters are often at a disadvantage in key foreign markets is that so many other countries have negotiated free-trade agreements (FTAs) with one another.
According to the World Trade Organization (WTO), 354 bilateral or plurilateral FTAs are in force around the globe today — up from about 100 at the turn of the century. However, as noted, the United States has FTAs with just 20 countries. This means U.S. exporters are often among a minority paying tariffs to sell their wares in key markets.
No one wants to go into a basketball game down by a dozen points from the tip-off — butthat’s exactly what American exporters do every day.
Nor is the situation getting easier. On January 1, a massive trade agreement called the Regional Comprehensive Economic Partnership—sweeping away tariffs and other trade barriers across East Asia—entered into force. RCEP means better access to some of the world’s fastest growing markets for businesses from Korea and Japan to Australia and Vietnam. However, U.S.-based manufacturers, services providers, farmers, and ranchers are shut out of these benefits.
The Trans-Pacific Partnership is another case in point. The U.S. pulled out of this 12-nation Asia-Pacific trade pact, even though American negotiators wrote 90% it. But it lives on: The other countries have brought it into force, suspending for now a handful of provisions seen as particularly beneficial to U.S. companies and renaming it the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). And now the UK, Korea, Taiwan, and China are seeking to join the agreement.
It isn’t just Asia, either. The EU has 46 trade agreements with 78 countries, and Africa is hard at work making its continental free-trade zone a reality.
For American workers, farmers, and companies, the sensation of being locked out and left behind on trade is depressingly familiar.
What can be done? This series will examine the stakes, the challenges, the opportunities, and the solutions.
Story by John G. Murphy, US Chamber of Commerce
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