Consumers benefit from free trade

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. This is a serious oversight, because consumers reap huge benefits from the freedom to buy goods and services from a global marketplace, says Daniel T. Griswold (Cato Institute).

Free trade and the enhanced competition it brings keep a lid on prices paid by consumers. According to a report by the U.S. Federal Reserve Bank of Dallas:

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 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.

As a general rule, explains Griswold, consumers in countries relatively open to trade enjoy a far higher standard of living than those in countries closed to trade. Economists James Gwartney and Robert Lawson 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 GDP of $3,251.

According to another study by the United States International Trade Commission, the lower trade barriers achieved through past trade 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, says Griswold.

Source: Daniel T. Griswold (Cato Institute) Free Trade is a Big Issue For Consumers, Consumers' Research, Vol. 86 No. 10, October 2003.

For Federal Reserve study http://www.dallasfed.org/fed/annual/2002/ar02b.html

For Gwartney and Lawson study http://www.freetheworld.com/release.html

For more on Free Trade Agreements http://www.ncpa.org/iss/int/

FMF Policy Bulletin\9 December 2003