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Trade and Protectionism: What Should be Done?
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12947 |
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Section : |
CURRENT ISSUES
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Date : |
5 / 1987 |
3,867 Words |
| Author
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Lawrence J. Lau
Lawrence J. Lau is professor of economics at Stanford
University. |
The United States is the world's largest trading nation. It has also been the world's staunchest supporter of the principle of free trade in the General Agreement on Tariffs and Trade (GATT) immediately after World War II, through the Kennedy and Tokyo Rounds of multilateral tariff reductions of the 1960s and 1970s up to the latest Uruguay Round of trade negotiations, the United States has consistently been pressing for the liberalization of the worldwide exchange of goods and services.
The United States supports free trade on the grounds that voluntary exchange of goods and services always raises the welfare of all trading partners, permits the international specialization of production according to the principle of comparative advantage, and leads to the highest and best use of scarce resources for all. However, the series of unprecedented large trade deficits since 1984 has roused widespread protectionist sentiments in the United States. There are currently several trade bills pending in the U.S. Congress, including one submitted by the president, all intended to provide remedies to the problems perceived to be created by the large trade deficit.
From the end of World War II to 1980, real net exports (the difference between real exports and real imports of goods and services) of the United States fluctuated between positive (surplus) and negative (deficit). However, the largest real trade deficit (negative real net exports), which occurred in 1972, was less than $50 billion in 1982 prices (according to The Economic Report of the President 1987), or approximately 2 percent of the then real gross national product (GNP). However, beginning in 1984, the real trade deficit rose precipitously from $20 billion to $84 billion and then
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