On January 15th, 2008, Ambassador Susan C. Schwab, United States Trade Representative, spoke to a trade measurement and policy audience, commenting on the current U.S. trade landscape and the continuous effort to refine economic methods for trade analysis, especially in the context of the Wilson Center's recent publication Tools of the Trade.
Tools of the Trade: Models for Trade Policy Analysis, edited by Christine McDaniel, Ken Reinert, and Kent Hughes, was published in January 2008 based on the analysis of experts and policymakers at a conference held on January 22nd and 23rd, 2004, by the Woodrow Wilson Center and the U.S. Department of Commerce. The goal of the event, entitled "Empirical Trade Analysis Conference: Strengthening Analytical Capabilities to Support Trade Negotiations," was to assess the strengths and weaknesses of economic models and their ability to inform trade policy questions. Analysts and policymakers continue to tackle the challenges highlighted in Tools of the Trade, making the discussion with Ambassador Schwab timely and fitting.
Lee Hamilton, Director of the Woodrow Wilson International Center for Scholars, introduced the United States Trade Representative, noting, "Ambassador Schwab is the face of the United States at the negotiating table. Surely, it's one of the most important and difficult jobs in the United States government. In the era of globalization, building economic bridges between countries around the world has never been more important."
Schwab began her presentation by expressing her appreciation for the work of the Woodrow Wilson Center, the Department of Commerce, the Department of Agriculture, the International Trade Commission, the Treasury Department, and the entire data collection and economic analysis community here in Washington. She emphasized that the ability to debate trade modeling issues is critical for her work in representing the United States internationally and on the Hill. And, she noted that the economic community faces a lot of difficulty in the process of trade analysis, especially because issues become contentious and because there is an inherent cycle time in the collection, analysis, and use of data.
"Real progress has been made over the years...in estimating the actual impact of trade agreements, particularly tariff changes, on national economies, on states, on regions, and even different income groups," she said. Yet, she made it clear that much remains to be done, saying, "The greatest challenges we face relate to insufficient data and arguably the state of modeling techniques to...fully capture the effect of modern trade agreements."
Schwab emphasized that policymakers and analysts should work together. Policymakers can describe the provisions of agreements and set priorities. Analysts need to explain the results of their research and be clear about the assumptions underlying their models and the limitations of the models they use.
Moving from the topic of trade analysis to current trade issues, Schwab noted that free trade agreements with Columbia, Panama, and Korea are currently being debated. She emphasized that there is "clear and convincing evidence that opening markets has generated unprecedented economic growth and raised millions of people out of poverty." And, speaking to the rise of opposition to globalization and increasing isolationism, she explained that there is a lot of "misuse and misunderstanding of data," especially with the interpretation of causality.
Her speech continued to address several specific aspects of the economy, and how they have been shaped and affected by "seven decades of progressive trade liberalization policy."
On the issue of jobs, she asserted that the United States experienced a net gain last year of 1.8 million non-farm jobs and that, throughout the years, "the American worker has continued to move up the economic ladder with each decade." Furthermore, she argued that the impacts of a changing economy can be mitigated: "For those individuals who lost their jobs, it doesn't matter what the macroeconomic data is, those are individuals who need to be helped. But the key is to help those individuals in a way that doesn't punish the rest of the economy that really does gain from vibrant and open economic growth."
The trade deficit was the next area of the economy that Schwab addressed. She cited the following causes for the high deficit: the increased cost of petroleum imports and the relative anemic growth of our trade partners. She also pointed out that exports grew relative to imports in 2007, and that U.S. exports to countries with free trade agreements have risen almost twice as fast as U.S. exports to other countries.
With regard to developing countries, she contended that several studies have shown the positive effects of free trade on their economies: "The developing countries that lowered their barriers to trade grew in the last decade three times faster than those that didn't." She noted the significant benefits that further liberalization could bring to African countries.
Schwab concluded that "globalization will continue – it is a fact on the ground" and that "it is absolutely critical that we accurately model and measure both the positive and the negative impacts of globalization." She points to a need for the opening of new markets, both for the benefit of Americans and the populations of developing countries. In the U.S., competition, rather than the limitation of imports, is essential in moving forward.
Finally, Schwab again thanked the economic modeling community for their contribution to trade analysis and for their partnership with her in examining how trade affects the global economy.
For more detailed information, please see Ambassador Schwab's remarks and the publication Tools of the Trade: Models for Trade Policy Analysis, below.
Drafted by Jacqueline Nader.