How Trade Agreements Have Enhanced the Freedom and Prosperity of Americans

An essential part of America's turning away from protectionism since the Great Depression has been the signing of free trade agreements (FTAs) with other nations. Those agreements, while imperfect, have led to lower tariffs and other barriers to trade, in the United States and abroad. They also have provided incentives for compliance through dispute settlement while discouraging mutually damaging trade wars. Although the impact of trade agreements has often been exaggerated by both their advocates and opponents, decades of experience and economic analysis confirm that the benefits for most Americans have been positive. The United States today is a richer and freer nation, and the world is a more hospitable place for economic activity because of those trade agreements. The most straightforward and preferable path to trade liberalization for any country is the unilateral reduction of trade barriers without regard for other countries' trade policies. Unilateral liberalization allows a country to realize the gains from openness--mainly lower prices for consumers, lower-cost inputs for businesses, and a more favorable exchange rate for exporters--without the need for complicated negotiations with other countries. Many nations have followed this route with success, from Great Britain in the mid-19th century to China and India and other emerging economies since the 1980s. As discussed in a separate Defending Globalization essay, however, unilateral liberalization is politically difficult, so governments have turned to reciprocal trade agreements, which offer reduced trade barriers at home in exchange for similar liberalization among participating governments abroad. The best approach to trade agreement liberalization is multilateral--the lowering of barriers to goods, services, and investment in a nondiscriminatory way by almost all countries through such forums as the World Trade Organization (WTO). A next-best option is bilateral and regional FTAs among two or several governments, respectively.