Trade has been a part of economic development for centuries. It has the potential to raise incomes worldwide by spurring economic growth, creating jobs, reducing prices, increasing the variety of goods for consumers, and helping countries acquire new technologies. Global trade is in part responsible for the tripling of incomes in poor countries over the past 50 years, compared with a 13-fold increase in incomes in Western Europe and a 17-fold increase in the U.S.

The world is more interconnected and interdependent than ever, and trade is an increasingly large part of the U.S.’s economic strength. Over the past 40 years, trade has almost tripled (from 9.6% to 26%) as a portion of the national economy. Almost 45% of U.S. exports goes to developing countries, which means that our economic well-being depends directly on developing country citizens’ ability to purchase goods from the U.S.

Weak or fragile states hinder the prospects for their own economic prosperity as well as U.S. economic prosperity. For example, countries such as Bolivia, Nigeria and Pakistan could be regional economic anchors and important trade and investment partners with the U.S., but instead are relatively weak and unstable, which reduces both the U.S. and their opportunities for trade and economic growth.

The U.S. is the largest market in the world. A strong U.S. economy is good for global development because it increases U.S. consumption of goods and services from abroad. But specific U.S. trade policies, including those for tariffs, quotas, and subsidies can have a negative affect on poor countries.

The U.S. creates barriers to its market through taxes on imported goods (tariffs) and restrictions on the amount of a good that can be imported (quotas). The highest U.S. trade barriers are against imports made predominantly in poor countries—such as agricultural goods, textiles, and footwear, the production of which is the first step to job creation and economic growth. For example:

• The U.S. often collects more in tariffs on goods from poor countries than from rich countries, even though it imported a much higher value of goods from rich countries. In January of 2005 the U.S. collected more in tariffs on goods from Sri Lanka ($26 million) than from all of Scandinavia ($15 million), although the value of Scandinavian goods is higher.
• The U.S. and other rich countries charge higher tariffs on processed goods, such as chocolate and shirts, than on primary goods, such as cocoa and cotton. For example, the U.S. does not have a tariff for cocoa beans, but imposes a tax of more than 25¢ a pound for certain kinds of chocolate. This makes it hard for poor countries to generate income by producing and selling higher value goods—such as by processing cocoa beans into chocolate.

The U.S. government gives subsidies to American agricultural producers, allowing them to sell their goods for less than it costs to produce them. U.S. Department of Agriculture subsidies to American producers topped $150 billion from 1995 to 2005, and the majority of these funds went to big agribusiness firms. These subsidies, along with tariffs on agricultural imports, make it hard for the world’s poor—70% of whom live in rural areas and rely on agriculture for their livelihoods—to compete in world markets with cheaper American (and European) agricultural products. For example:

• From 1995 to 2005, U.S. Department of Agriculture subsidies to American producers totaled more than $150 billion. The majority went to big agribusiness firms despite the fact that smaller farmers constitute roughly 90% of producers.
• The 2002 Farm Bill gave $12 billion in subsidies, 80% of which went to large producers—those with more than 500 acres of land. Seventy-eight agribusiness firms received more than $1 million each. The top recipient received $110 million.
• The U.S. cotton sector received $3.2 billion in subsidies in 2004. Of this amount, nearly 80% went to the top 10 % of recipients, or about 13,000 cotton producers. By comparison, these subsidies make it hard for the more than 10 million cotton farmers in West and Central Africa to sell their products on world markets.

While the U.S. gives more than $390 million per year specifically to help increase agricultural productivity in developing countries, this development assistance is dwarfed by the negative impacts of agricultural subsidies and tariffs. For example, U.S. tariffs on imports from India, Indonesia, Sri Lanka, and Thailand brought in $2.06 billion in 2005—twice what the U.S. committed to these countries for tsunami relief the same year.

No. Government support of producers in all rich countries (through subsidies and tariffs) amounts to almost four times the value of global development assistance. And if rich countries fully opened their markets to products from poor countries, the value in increased income would be almost double that of development assistance.

U.S. tariffs are highest on certain food products, clothing, and shoes—items that make up a larger share of low-income Americans’ expenses and are produced in poor developing countries. For example, an American worker earning $15,000 a year spends proportionately more of his income on highly protected goods and has to work an extra week to earn the amount he pays in tariffs each year. A single mother earning $25,000 a year has to work an extra 3 days.

Imports of computers assembled abroad lower U.S. prices and spur investment in sectors that rely on computers. Partly for this reason, U.S. job growth in the 1990s increased in the information technology sector to twice that in other sectors.

• Trade in goods has grown from about 6% to 20% of the U.S. economy over the past 40 years. This means that more U.S. jobs are linked to trade, not only in the manufacture of exports but also in related service-sector industries such as trucking and shipping as well as retail employment in stores.
• Blue-collar workers in U.S. plants that export goods earn 13% more on average than those in non-exporting plants; white-collar workers earn 18% more on average. The value of employee benefits such as health insurance and paid leave is 37% higher on average in exporting plants.
• Imports of computers assembled abroad lower U.S. prices and spur investment in sectors that rely on computers. Partly for this reason, U.S. job growth in the 1990s was twice as high in the information technology sector as in other sectors.

They change the distribution of jobs across sectors and create losers as well as winners.

• Between 1984 and 2004 more than 30 million U.S. workers lost their jobs, mostly in high import-competing manufacturing industries such as clothing, autos, and electronics. These industries account for only 30% of all manufacturing jobs in the U.S., but 38% of manufacturing job loss.
• Of the workers displaced—both in high import-competing and other manufacturing jobs—about one in three moved into new jobs with equal or better incomes, but one in four suffered earnings losses of more than 30%.
• Recent trends in globalization, like the economic growth of China and India, have increased the number of U.S. jobs “outsourced” to other countries. One estimate puts the number of white-collar job losses at 3.3 million by 2015.
• Nearly 70% of Americans who have health insurance get their coverage through employers, so losing a job can be extremely costly to families, with lost health coverage as well as lost wages

With the Trade Adjustment Assistance (TAA) program, the U.S. government provides aid to certain workers who are certified as having lost their job because of trade or because their employer moved offshore. TAA includes:

• Retraining and income support after unemployment insurance runs out
• “Wage insurance” for some workers over age 55 that replaces up to 50% of the wage difference for up to 2 years when a worker takes a new job at a lower wage (capped at $10,000)
• A refundable tax credit to pay up to 65% of the cost of maintaining health insurance for up to two years for displaced workers
  For more information on the TAA program, visit www.taacoalition.com.

• Lower prices: An average single-parent family in the U.S. today pays an extra $200 on clothes and $70 on shoes each year as a result of trade barriers.
• Greater variety: U.S. trade with Chile, New Zealand, South Africa, Thailand, and other countries allows Americans to purchase affordable fruits and vegetables year-round. And it goes both ways—exports of U.S. oranges to China grew from 0.3 million kilos in 1999 to 23.3 million kilos in 2001.
• Higher quality: In the 1970s and 1980s, foreign competition forced the “Big Three” U.S. auto makers to be more responsive to consumers and to improve the quality of their product.

• Improved basic education and more accessible college education: College graduates are 22%–26% more likely to be reemployed if displaced than high school graduates, and their earnings losses are 7%–9% lower.
• Lifelong training: Workers who receive regular on-the-job training are better equipped to adapt to changing conditions in the global economy.
• Access to health care: With health care and insurance tied to jobs, the costs of dislocation are higher, anxiety about job loss is higher, and there are fewer incentives to adjust to economic change.

The private sector in the United States contributes to the strength of the U.S. economy, which helps poor countries by providing a strong market for their goods and services.

The private sector can support development through Foreign Direct Investment (FDI). From 1995 to 2004, an average of $28 billion a year of FDI flowed from the U.S. to developing countries. American firms directed FDI to a variety of activities, including building factories for manufacturing, opening banks to offer financial services, and exploring for oil. U.S. companies also invest in innovative technologies such as agricultural techniques, communications systems, and medicines that can be used to support development abroad.

• Over half (53%) of Americans support the growth of global trade in principle, but are not satisfied with the way the U.S. government is dealing with the effects of trade on American jobs, the poor in other countries, and the environment.
• Two-thirds (67%) of Americans agree that the U.S. should lower its barriers to other countries’ products if those countries are willing to lower their barriers to products from the U.S.
• More than three-quarters (77%) of Americans (and 81% of those in farm states) are in favor of the U.S. government giving subsidies to small farmers who own less than 500 acres, but only 31% (and the same proportion in farm states) are in favor of subsidies for large farming businesses.
• 53% support increased trade but are not satisfied with how the U.S. government is “dealing with the effects of trade on American jobs, the poor in other countries, and the environment.”
• 87% would support increased trade if assured that “we were making major efforts to educate and retrain Americans to be competitive in the global economy.”
• 93% believe that countries that are party to trade agreements should be required to maintain minimum labor standards.