Free Trade and a Big US Debt
The World Trade Organization starts a make-or-break meeting in Geneva Tuesday in an attempt to further open global markets. The WTO set a 2005 deadline to finish this so-called Doha round of negotiations. This week, its 147 members must make final compromises to succeed in time. But negotiators, from both rich and poor nations, are still holding fast to many protectionist walls.
For the United States, which left its home market relatively open for decades compared with other nations, success in the talks would help it greatly expand its exports. That's especially true for its most competitive industries: services, such as finance and banking, and agriculture.
The US needs greater reciprocity in free trade and a hefty rise in exports if it's ever to reduce a whopping foreign debt caused by the fact that it imports more than it exports.
Every minute, the US goes $1.1 million further into debt with foreign creditors. The cumulative gap since 1990 adds up to $3.1 trillion, according to MBG Information Services in Washington. That amounts to a quarter of the nation's yearly GDP.
But here's the potential crunch: With more dollars held abroad, the US currency is more vulnerable to foreign creditors, and the possibility they might someday quickly sell those dollars. That's not a scenario the US can ignore.
The dollar's value has dropped about a fifth in the past two years, which actually makes US exports cheaper to foreigners. The nation's exports rose to a record $97.1 billion in May. But imports rose to $143.1 billion, and so the US appears headed toward a record deficit in international payments again this year.
One solution is for consumers to import far less (such as reducing oil consumption). But an easier one is to make sure these global talks succeed, opening up more foreign markets.
A one-third lowering of global trade tariffs and rules for all products and services would boost the US economy by $177 billion, according to a University of Michigan study. A 100 percent removal of barriers could boost US exports by $83 billion a year.
Behind all these numbers about global commerce lies a need to use free trade as a way to reduce poverty in the poorest countries and to link nations closer together, reducing incentives for violent conflict.
A parallel pursuit by the US of bilateral trade agreements won't do as much to boost trade as widening the current global pacts. For the sake of future generations of Americans, let's hope the US and others can find compromises on trade issues this week.