Many Americans blame free trade for their nation's economic slide, but the authors' research shows that free trade has been assigned a villainous role that far exceeds its real impact. The evidence exposes three myths. Myth 1: "America's open trade policy is the main cause of job losses, especially in manufacturing." The real drivers of the losses: rising productivity growth in U.S. manufacturing and a shift in demand away from goods in favor of services. Myth 2: "U.S. living standards are falling and wage inequality is rising because developing countries compete with the U.S. in its export markets on cost." The truth is that the U.S. and developing countries have specialized in very different products and processes, making the latter complementary to America's growth. Myth 3: "The rapid growth of emerging markets like China and India is the most important reason for the higher oil prices that hurt Americans." The primary responsibility for the shortfall between demand and supply that has caused oil prices to soar rests with developed countries, which contributed to most of the price increase from 2000 to 2008. The authors advocate a more active U.S. trade policy that emphasizes exports, bilateral cooperation with other economies to maintain a trading order that supports U.S. economic interests, and plurilateral agreements with WTO members on issues such as competition policy.
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Tags: Trade Policy