Free Trade Agreements in Perspective
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
June 8, 2022
Free Trade Agreements in Perspective
On balance, free trade agreements have benefited the United States, and US workers. This
is true of both bilateral and multilateral agreements. These agreements have been negotiated
by the US to advance US interests, and accordingly reflect US values and objectives. They also
reflect an alignment of interests with our negotiating partners, who similarly benefit from
growing trade. Contrary to what some have asserted, there is no evidence that bilateral
agreements are inherently superior to multilateral ones, or that free trade agreements have
been abused or manipulated by our partners. By virtue of their scale, multilateral agreements
can in fact deliver strategic benefits to the US that bilateral ones may not.
Since the 1980s, both bilateral and regional free trade agreements (FTAs) have been used
by nations around the world to reduce barriers, open markets, and create new and higher
standards in areas such as investment, intellectual property, and now digital commerce. Behind
the US approach to trade agreements has been a recognition that as global markets grow in
importance and emerging markets expand, trade and investment opportunities grow as well.
The collapse of communism, the entry of China and India into the world economy, and
accelerating growth in Asia and other regions have brought billions of new consumers into the
global market economy. That includes hundreds of millions of consumers who have entered the
middle class with new purchasing power. By reducing trade and investment barriers, leaders
across multiple administrations have believed that markets overseas will expand, due to the
lowering of barriers but also due to growing trade volumes. US companies cannot afford to
ignore these opportunities, as 95 percent of the world’s population and 75 percent of global
purchasing power now reside outside the United States.
Multiple assessments have shown that free trade agreements have clear benefits for the
United States. US International Trade Commission economic analysis models have found that in
addition to positively affecting real GDP, employment, and wages, FTAs currently in force
increased US trade surpluses or reduced trade deficits with partner countries by 59.2 percent
($87.5 billion) in 2015. They also produced tariff savings of up to $13.4 billion in 2014,
benefiting consumers—particularly those with low or middle incomes—through lower costs.
Of the 267 bilateral and regional free trade agreements that have been negotiated around
the world, only 14 involve the United States. The provisions included in the proposed Trans-
Pacific Partnership (TPP), an agreement between the United States and 11 trading partners,
were positioned as the centerpiece of US strategy both to open markets and cement US
economic leadership in the Asia-Pacific region. The withdrawal of the United States from the
Trans-Pacific Partnership will not stop this global process. Canada and the European Union have
recently approved a free trade agreement, and Japan and Europe are discussing one. In Asia,
China’s proposed 16-nation trade agreement—RCEP—is positioned to fill the void left by the US
withdrawal.
Effects on Manufacturing
Taken together, nearly half of all US-manufactured exports are purchased by free trade
agreement partners, even though they account for only 6 percent of the world’s consumers and
less than 10 percent of the world’s economy. In 2015, the US enjoyed a $6.4 billion goods and
services surplus with its 20 free trade partners, compared with a $489.8 billion deficit with non-
FTA countries. Currently, the United States’ largest trade deficit is with China, which has no
trade agreement with the US and was not a party to the proposed Trans-Pacific Partnership.
Contrary to critics’ claims, trade agreements are not the fundamental cause of erosion in
the US manufacturing sector or of the disappearance of manufacturing jobs. Manufacturing
output is growing, and US manufacturing companies produced a record $2.2 trillion in value in
2015. Manufacturing production, however, is different from employment, which has been
declining for decades. Only a small part (approximately 13 percent) of that decline is due to
trade. The real reason we have fewer manufacturing jobs is technology, which makes
production more efficient and requires fewer workers. An instructive parallel is agriculture,
where US production since 2010 is up 13 percent, while jobs in agriculture fell 15 percent, both
trends due to technology. These are inexorable processes that will continue.
Free trade agreements have, in fact, had a positive impact on manufacturing. In 2015, US
manufacturers sold $12.7 billion more in manufactured goods to FTA partners than US
companies bought from them. At the same time, the US had a manufacturing trade deficit of
$639.6 billion with countries where no FTAs are in place.
