The U.S. Should Walk the Talk on Free Trade

From Bloomberg:

Trade accounted for about 29.2 percent of U.S. economic activity in 2010. That makes the U.S. the most closed of all developed nations according to “trade intensity,” which is calculated as the sum of exports and imports, divided by gross domestic product.

[…]

Standard measures of trade intensity, if anything, probably understate the degree to which the U.S. is a closed economy. A recent study by the Federal Reserve Bank of San Francisco suggests that the Bureau of Economic Analysis overvalues the value of imports by 36 percent by ignoring domestic value-added in transport, marketing and retail.

[…]

Geography is an influential factor. The U.S.’s large interior reduces the competitiveness of foreign imports. It also means that many of the U.S.’s economic needs can be served by its own sources of supply, whereas domestic scarcities compel smaller nations into global markets.

[…]

The U.S.’s transportation infrastructure also plays a part. Compared to the rest of the world, the U.S. relies heavily on overland forms of commercial transport — interstate highway trucking and freight railways. While this transportation system is to a large degree the result of geography, it has a compounding impact on openness, giving a cost advantage to goods already in the overland network relative to foreign goods, which largely arrive by sea.

[…]

If the U.S. were to double its trade intensity, it might raise the annual rate of GDP growth by 0.7 percent, one study concludes — not an insignificant amount in an age when U.S. economic growth crawls along at 2 percent. Another finds that for each percentage-point increase in trade intensity, per-capita income rises by half a percent. (Other studies suggest that the impacts to growth or income may be uncertain or insignificant.) The evidence is somewhat stronger that a more-open U.S. would support growth in developing countries.

Print Friendly, PDF & Email