Your research paper for the “economic policy brief” considers the historical and policy contexts for a specific country. You consider the economic development history and important economic and politi

Within the long upward trend, there are several short-run downturns in the series, each of them during and after a recession (1974–1975, 1980–1982, 2001, 2007– 2009). Recessions cause a fall in imports due to the decline in income, and exports fall as well if other countries are also in recession.

Real-time data Identify major changes in U.S. economic relations that have led to bilateral and plurilateral agreements.

LO 13.1 Not for Di str ib u tio n Figure 13.1 The Trade-t o-GDP Ratio for the Unit ed States, 1966–2014 Over the last fifty years, trade in goods and services has more than tripled as a share of the U.S. GDP.

Source: Data from World bank, © James Gerber. The top trading partners of the United States have not changed dramatically over the last several decades, with the major exception of China ( Table 13.1 ). As recently as 1990, China was the eighth most important source of U.S. imports and the eighteenth most important market for U.S. exports. By 2007, it was the number one source of imports and the third most important export market. If the European Union (EU) is treated as one entity, then it moves into the second spot for both imports and exports, behind Canada (exports) and China (imports). The prominence of Canada and Mexico in Table 13.1 illustrates the relative importance of the North American Free Trade Agreement (NAFTA) partners, not only today, but over time as well, as both countries have been among the top five U.S. trade partners for several decades.  Not for Di str ib u tio n Table 13.1 Leading U .S. Trade P artners, 1990 and 2015 Top Five T rading P artners, in Or der of Impor tance Exports     1990 Canada, Japan, Me xico, UK, and Germany     2015 Canada, Me xico, China, Japan, and UK Imports     1990 Canada, Japan, Me xico, Germany, and T aiwan     2015 China, Canada, Me xico, Japan, and Germany The goods and services that make up U.S. trade have not changed much either, although services have become more important. In 1980, services were approximately 20 percent of U.S. exports, and now they are close to 30 percent and continue to show strength, not the least of which is that they are an area in which the United States has a trade surplus. About 40 percent of service exports are travel and transportation services, while the remaining 60 percent are royalties, education, financial and insurance services, and business and professional services. Within the merchandise goods category (manufacturing, oil and minerals, and agricultural products), the United States is the world’s second largest exporter of goods (behind China), and about three-fourths of those exports are manufactured goods, with the remaining one-fourth consisting of agricultural and mineral products, including oil and gas.Not for Di str ib u tio n The S h ift in g F o cu s o f U .S . T ra d e R ela tio n s Throughout most of the post-World War II period, the United States was a strong supporter of multilateral trade opening as negotiated under the auspices of the General Agreement on Tariffs and Trade (GATT) trade rounds and then under the World Trade Organization (WTO). Support for open capital markets was less prominent until the 1980s, when it became another goal of U.S. policy. These positions were reinforced by the Cold War and the U.S. desire to ensure that developing nations joined the alliance of capitalist, democratic nations or, at a minimum, did not form strong ties with the Soviet Union.Not for Di str ib u tio n Figure 13.2 Case S tud y Manufacturing in the United S tates In what year did the United States pr oduce its highest output of manufactur ed goods? When a lar ge group is ask ed this question, the guesses range from the 1960s t o the 1990s. The corr ect answer is usually “Last year.” Figur e 13.2 illustr ates this by plotting on the left scale the real value added in manufacturing, 1950–2014. As the gr aph shows, there is a long-run upwar d trend in the value added of manufacturing output, which is int errupted by the occasional r ecession, most recently in 2007– 2009. Real Value Added and Employment in Manufacturing, 1950–2014 Since the late 1970s, manufacturing employment has declined, while manufacturing output has constantly risen except during recessions.

Source: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics The right scale shows manufacturing employment. Employment peak ed in 1979 at 19,426,000 and began a long-run decline after that. In 1980, the United S tates ent ered a mild r ecession and then a mor e severe one in 1981–1982. Manufacturing employment r ecovered some of its losses in 1984 but continued its tr end downward particularly aft er 2000.

Within the st ory of the gr owth of manufacturing output and manufacturing employment decline, ther e are two additional st ories not directly shown in Not for Di str ib u tio n Several factors have caused shifts in this stance. First, multilateral trade negotiations became more complicated as the GATT and then the WTO added new members.

When the GATT was originally signed in 1947, it had twenty-three members, but by the time of the Uruguay Round (1986–1994), there were 128 signatories to the GATT. Currently there are 162 member countries in the WTO. The increase in membership has dramatically complicated negotiations.

Second, many quotas have been converted to tariffs, and tariffs in general have fallen dramatically (see Figure 6.4 ). Consequently, the new multilateral trade negotiations in the Doha Round are focused on much more difficult issues such as agricultural support systems, intellectual property, services trade, government procurement, and assistance for developing countries. These areas pose significant challenges, in part because they are not easily represented as reciprocal openings. If the graph. First, ther e is the story of manufacturing r elocation within the United S tates. T raditional industrial stat es in the north central part of the United S tates, such as Ohio and Michigan, have seen many jobs leave for other par ts of the countr y. Some jobs have gone overseas, but quit e a few have also gone to Southern states such as South C arolina, T ennessee, and Te xas. When coupled with the over all decline in the total number of jobs, the plight of older manufacturing stat es has been grim. This has also contributed to the mistak en perception that the Unit ed States no longer has a vibr ant manufacturing sect or, but the st ory of Figur e 13.2 is that the Unit ed States continues t o produce a lar ge and growing quantity of manufactur ed goods.

The second st ory is the r apid incr ease in pr oductivity in the manufacturing sector. F ewer work ers but mor e output means that each work er is producing mor e, and output per hour work ed in manufacturing has increased at a ver y rapid r ate. This has occurr ed in part through the application of new t echnologies and new pr ocesses, and while productivity gr owth speeds up and slows down, it is usually much mor e rapid in manufacturing than in ser vices or agriculture. Hence, even as the United S tates pr oduces mor e manufactur ed goods, fewer work ers are involved.  Not for Di str ib u tio n all countries cut their tariffs by 5 or 10 percent, it is easy to see a mutual gain; but if all countries agree to enforce intellectual property rights on an equal basis, it is hard to see the immediate benefits for countries with little or no intellectual property to defend. In addition, many of these new areas of negotiation are concerned with issues that are deeply embedded in national politics. For example, creating a level playing field in government procurement so that foreign firms can bid on contracts let by a national or sub-national government arouses resentment when domestic firms lose out in bidding to foreign ones.

Third, the end of the Cold War has removed one of the pressures that caused the United States to offer trade concessions to other countries. During the Cold War, the United States used access to its market as an incentive to keep countries from developing deeper ties to the Soviet Union. It frequently agreed to asymmetric opening of its markets without demanding equal access to foreign markets when the country in question was perceived to have geostrategic value in the Cold War. The United States also used its systems of quotas to reward nations for their cooperation by allowing them to sell more in the United States, particularly in the textile and apparel sectors, but also in agriculture. The demise of the USSR removed this need to compromise or to offer asymmetric access to the U.S. market.

These three factors have shifted the U.S. focus toward greater use of bilateral and plurilateral trade agreements. The United States is still supportive of the WTO and officially welcomes a successful conclusion of the Doha Round of negotiations that began in 2001, but multilateral agreements are no longer the only or even necessarily the main option. The movement toward bilateral solutions began in earnest in 1993 with the signing of the NAFTA and its implementation on January 1, 1994. While valuable in its own right, NAFTA also served the purpose of helping to push the multilateral system toward conclusion of the Uruguay Round of the GATT agreement by expanding trade policy to include bilateral agreements. This gave the United States additional leverage in multilateral negotiations, as it signaled that there are options beyond the GATT/WTO framework. In addition, from the perspective of the United States and many other countries that have signed a growing number of trade agreements, working within a bilateral or plurilateral framework entails easier negotiations than in the multilateral case and has the additional benefit of serving as a testing ground for new types of agreements. ForNot for Di str ib u tio n example, the NAFTA agreement was the first to include labor and environmental standards.

The United States currently has free trade agreements (FTA) in force with twenty countries grouped into three strategic geographical regions: the Middle East and North Africa, the Pacific Basin, and the Americas. Most agreements are with small countries that account for a small share of U.S. merchandise trade, but Canada, Mexico, and Korea are major exceptions. Table 13.2 shows the agreements in force, their dates of implementation, and the total amount of merchandise goods traded in 2015. Not for Di str ib u tio n Table 13.2 Free- Trade Agr eements and Mer chandise Goods T rade, 2015 Regions and Countries Expor ts (Millions) Impor ts (Millions) Middle East and Nor th Africa Israel (1985), Bahr ain (2006), Morocco (2006), Oman (2009), Jordan (2010) 20,176   28,764   Trans-P acific Singapor e (2004), Austr alia (2005), Kor ea (2012) 97,193   100,925 Americas Canada (1989), Me xico (1994), Chile (2004), Dominican Republic- Guatemala-Hondur as-El Salvador- Nicaragua-Costa Rica (DR-C AFTA, 2006) P eru (2009), P anama (2011), Colombia (2012) 594,033 642,079 Total mer chandise tr ade with FT As 711,402 771,768 Share of total mer chandise trade (%) 47.3       34.4       The final two rows of Table 13.2 summarize size and relative importance of merchandise exports with free trade areas. Free Trade Agreement (FTA) countries are around 47 percent of U.S. exports and approximately 34 percent of imports.

Proponents of FTAs make the argument that U.S. markets are relatively more open than many foreign markets. Given the relative openness of the U.S. market, bilateral Not for Di str ib u tio n and plurilateral FTAs that help open foreign markets promote U.S. exports relatively more than U.S. imports instead of causing a proportional increase in both.

Consequently, U.S. exports to FTA partners are a larger share of total merchandise trade than U.S. imports from FTA partners.

This interpretation of Table 13.2 supports the idea that FTAs have been relatively good for the U.S. insofar as they have helped to open foreign markets. Similarly, many other countries have shifted toward signing bilateral and plurilateral agreements. Prior to 1990, twenty-seven FTAs were notified to the GATT. In the 1990s, another fifty-five were created, but since 2000, 217 agreements have been registered with the WTO. Some economists see the upsurge of bilateral and plurilateral agreements as one of the principal causes for the erosion of the Doha Round of the WTO, because they have diverted political attention toward bilateral or regional concerns and away from global ones. Theoretically, FTAs can be “stumbling blocks” that detract from multilateral agreements or “building blocks” that create more trade than they divert and that enable countries to try new types of agreements. The WTO has concluded that in practice, most are complementary to the multilateral trading system and not substitutes for it. Not for Di str ib u tio n