Americans Need to Export More and Not Less

It is unclear what free trade opponents are against in the current trade debate. Is it about Trade Promotion Authority (TPA), Trans-Pacific Partnership (TPP), or something that has nothing to do with free trade? Contrary to claims that trade agreements have been big failures and disastrous to American workers and the U.S. economy, the numbers decisively tell a success story. The U.S. needs to export more and not less.

Since its first Free Trade Agreement (FTA) with Israel in 1985, the United States has implemented 14 preferential trade agreements with 20 countries located in the Americas, North Africa, the Middle East, and Asia. Nearly half of U.S. merchandise exports went to these FTA partner countries. While having more than $524 billion trade deficits in manufactured goods in 2014, the U.S. enjoyed a $55 billion trade surplus in manufactured goods with FTA partners.

We applied trade data to estimate the impacts of FTAs on U.S. exports over the past 30 years. Our analysis indicates that FTAs spurred more than $41.9 billion and 7.3% of U.S. manufacturing exports to FTA partners. As expected, our analysis shows that Americans export intellectual property (IP)-intensive products such as pharmaceuticals, computer and electronic products, transportation equipment, chemical products, and medical devices; all areas where Americans have comparative advantages in the global markets. We also found that FTAs spurred over $34.2 billion in exports from IP-intensive industries, or 10.9% of IP-intensive exports. In comparison, exports of non-IP-intensive industries grew by approximately $7.7 billion, or 3.0% of U.S. exports, to those FTA partner countries.

By reducing and eliminating tariffs and non-tariff barriers, trade agreements have boosted exports which consequently raised outputs, employment, and wages in the exporting countries. Our analysis show that IP-intensive manufacturing industries added more jobs during the most recent economic recovery period while non-IP-intensive manufacturing industries cut more jobs during the economic downturn. While IP-intensive manufacturing industries employ nearly 30% of American manufacturing workers, they account for nearly 50% of gross output (total sales) of manufacturing industries. IP-intensive manufacturing industries pay 50% higher wages than non-IP-intensive manufacturing industries (approximately $60,000 compared to $40,000 per employee annually).

All in all, the numbers are favorable for U.S. trade agreements. Although U.S. exports have increased substantially in the past 30 years since its first trade agreement with Israel, the share of U.S. merchandise exports has declined from 11.2% to 8.6% of world exports as world exports have increased more than ten times. With the rapid increase in global economic integration, it makes perfect sense that American leaders are in search for FTA partners.