Free Trade Is a Big Issue for Consumers: Not Just about Jobs

By Griswold, Daniel T. | Consumers' Research Magazine, October 2003 | Go to article overview

Free Trade Is a Big Issue for Consumers: Not Just about Jobs


Griswold, Daniel T., Consumers' Research Magazine


Whenever trade is debated in Washington, the focus is almost exclusively on its impact on producers and jobs--virtually never on the benefits of import competition for American consumers. (See "Consumers Lost in Cancun" at page 34.) This is a serious oversight, because consumers reap huge benefits from the freedom to buy goods and services from a global marketplace.

Like domestic competition, the competition that international trade injects into our economy means lower prices, better quality and more variety for American consumers. We can enjoy fresh fruit and vegetables year around, the latest innovations in electronics, and lower prices for an array of consumer products because of trade. American families drive safer, more attractive, and more affordable cars than we would if we were confined to cars made only by the Big Three domestic automakers.

Free trade and the enhanced competition it brings keep a lid on prices paid by consumers. Prices we pay for goods and services subject to import competition generally increase more slowly or even decrease compared to what we pay for goods and services insulated from global competition. A recent report from the Federal Reserve Bank of Dallas, titled "The Fruits of Free Trade," found that prices actually fell between 1997 and 2002 for products subject to the most import competition, such as TVs, toys, roasted coffee, clothing and footwear, cars, and video, photographic and audio equipment. In contrast, prices rose the most steeply--typically well above the inflation rate--for those goods and services that faced little or no import competition, such as inpatient hospital services, cable TV, college tuition and fees, admission to sporting events, hair cuts, motor vehicle repair, and funeral expenses.

China has become the target of politicians fretting over the impact of imports of Chinese goods to the United States on certain domestic producers, but almost no attention has been paid to the benefits for U.S. consumers. About half of what we import from China are consumer goods such as shoes, toys, artificial Christmas trees, telephones, VCRs, and other home electronics. Wal-Mart, the top retailer in the United States, imported $12 billion in goods from China last year, about a tenth of all our imports from China. According to the report by the Dallas Fed, the "Made in China" label could be found on 88% of imported radios, 83% of imported toys, 70% of imported leather goods, two-thirds of imported shoes, handbags, and lamps and lights, and more than half of imported sporting goods bought by Americans last year. If the U.S. government were to raise barriers to imports from China, American consumers would be among the biggest losers.

As a general rule, consumers in countries relatively open to trade enjoy a far higher standard of living than those in countries closed to trade. A new study by economists James Gwartney and Robert Lawson, "Economic Freedom of the World: 2003 Annual Report," found people living in countries that ranked in the top fifth in terms of economic freedom enjoyed an average per capita gross domestic product of $22,922; people living in countries ranked in the bottom fifth subsisted on an average per capita Gross Domestic Product (GDP) of $3,251. According to another study by the United States International Trade Commission (USITC), an independent federal agency, released in July 2003, the lower trade barriers achieved through past trade agreements, such as the North American Free Trade Agreement and the Uruguay Round Agreements, have added an extra $56 billion in income annually to the U.S. economy, further boosting the buying power of American consumers. Clearly, economic openness and freedom translate into higher incomes and levels of consumption.

The other side of the coin is the cost to consumers when governments interfere with trade. Although the U.S. economy is relatively open compared to other countries, lingering protectionism forces Americans to pay higher prices for popular consumer products. …

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Free Trade Is a Big Issue for Consumers: Not Just about Jobs
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