ERP-2004-chapter12.pdf - C H A P T E R 1 2 International Trade and Cooperation S ince the end of the Second World War international trade has grown

ERP-2004-chapter12.pdf - C H A P T E R 1 2 International...

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S ince the end of the Second World War, international trade has grown steadily relative to overall economic activity. Countries that have been more open to international flows of goods, services, and capital grew faster than countries that were less open to the global economy. The United States has been a driving force in constructing an open global trading system. A series of international trade agreements has reduced barriers to trade in goods and services and has been an important element in U.S. and global growth. During this period, new types of trade emerged and delivered new benefits to consumers and firms in trading countries. Growing international demand for goods such as movies, pharmaceuticals, and recordings offered new oppor- tunities for U.S. exporters. A burgeoning trade in services provided an important outlet for U.S. expertise in sectors such as banking, engineering, and higher education. The ability to buy goods and services from new places has made household budgets go farther, while the ability of firms to distribute their production around the globe has cut costs and thus prices to consumers. The key points in this chapter are: Trade has grown significantly since World War II. The benefits from new forms of trade, such as trade in services, are no different from the benefits of traditional trade in goods. The benefits of integration are substantial. International cooperation is an essential part of realizing the potential gains from international trade. A system through which countries can resolve disputes can play an important role in realizing these gains. Increased Trade Flows: Facts and Trends One way to measure the relative importance of international trade is to compare the value of trade flows to overall economic activity. In the latter half of the twentieth century and into the twenty-first, growth in world trade has outpaced growth in world output (Chart 12-1). As recently as 1950, the sum of merchandise exports of all countries equaled only 8 percent of world GDP. In 2002, the most recent year for which data are available, exports had increased to 19 percent of world output. For the United States, the sum of merchandise exports and imports rose from 7 percent to 18 percent of GDP over the same period. 223 C H A P T E R 1 2 International Trade and Cooperation
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224 | Economic Report of the President Increased trade has been accompanied by increased output growth, which can be attributed, at least in part, to the opening of markets and to the bene- fits derived from the international trading system. The growth in world trade also reflects lower transportation costs, which facilitate trade; new production processes, which allow companies to produce and assemble goods in different countries; and information technology, which facilitates communication between buyers and sellers. These allow trading countries to take advantage of variations in resource endowments and sectoral productiv- ities across countries.
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