There are nearly 400 regional trade agreements either in force around the world, signed but not yet in force, or being negotiated, according to the World Trade Organization. And the number is anticipated to grow at an accelerated rate.

Not surprising, many of these agreements have evolved into trade blocs, such as the 27-member European Union and the 10-member Association of Southeast Asian Nations. And as they evolve, their global negotiating strength increases as they capture more and more global trade and investment.

The Bad News

The United States only has free trade agreements with 15 countries, with three more awaiting for Congressional approval.

As our competitors establish more accords that eliminate import barriers among member countries, U.S. exports — which still incur duties — are placed at a competitive disadvantage. To remedy this, the U.S. needs to forge new trade agreements that level the playing field.

However, our ability to do so is compromised since Trade Promotion Authority (TPA), previously known as Fast Track, expired on July 1, 2007, and is unlikely to be renewed anytime soon.

Why is this important? TPA requires Congress to pass or reject trade agreements “as is.” Without it, foreign governments have been reluctant to negotiate treaties that Congress could later change.

The Impact

Federal Reserve Chairman Ben Bernanke said, "Trade allows us to enjoy both a more productive economy and higher standards of living." Yet, he also points out that "Economic isolation and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers."

Although not well understood, the benefits of trade are enormous. For example, trade enables American producers to sell beyond the U.S. market of 302 million consumers to reach the world market of 6.6 billion. This is important since one in every five American jobs is linked to exports and imports of goods and services.

Furthermore, trade-related jobs pay 13-23 percent higher than the average wage, as well as strengthen our companies and farms. Plus, trade and globalization have generated an increase in U.S. income of approximately $1 trillion annually, according to the Peterson Institute for International Economics, a Washington, D.C. think tank.

This translates into annual income gains, on average, of approximately $10,000 for each American household. By removing all trade barriers, according to Bernanke, household incomes would increase another $4,000 to $12,000 annually.

Playing Catch Up

In 1950, trade accounted for less than 5.5 percent of U.S. economic growth. Today, it has become an integral part of everyday life, accounting for almost 30 percent of our economic growth.

New agreements that reduce foreign trade barriers will help U.S. companies export and create more jobs. And companies that don’t export also benefit since some of their components sold domestically likely are incorporated in exported products.

There is no doubt: the number of free trade agreements being implemented by our competitors is on the rise. And this will give them a competitive advantage. As a result, it's important for Congress to renew TPA and allow the United States to catch up and the level playing field.

This article appeared in January 2008. (CM)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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