http://www.heritage.org/library/categories/trade/tp23.html

Answering Commonly Asked Questions About Trade

Q: Doesn't free trade destroy American jobs?

A: No. Free trade creates jobs, and expanding free trade will benefit the U.S. economy even more.

Q: Doesn't free trade hurt low-wage workers by sending their jobs to other countries while favoring higher-wage workers?

A: No. The goal of sound economic policy is to create a dynamic environment in which low-wage workers improve their skills and move into higher paying jobs, and where everyone's wages can increase over time. Free trade is sound economic policy.

Q: As U.S. exports have grown, so have imports. Doesn't an increase in imports displace Americans who could have manufactured those products here?

A: No, because imports also create more jobs for Americans.

Q: Aren't U.S. factories moving overseas just to take advantage of cheaper labor?

A: No. This question assumes that "rate of pay" is the same as "cost of labor" to a business, and that the cost of labor is the only factor a business considers when deciding where to produce its product. Neither assumption is valid.

Q: Aren't American jobs lost when American businesses move overseas?

A: Not in a liberalized free trade environment. A free trade and investment system doesn't just allow U.S. companies to move overseas; it also allows foreign companies to move to the United States.

Q: Don't import quotas, tariffs, and other barriers to trade protect domestic jobs?

A: No, as a study of unemployment rates will show. The United States, which generally is open to free trade and investment and has fewer trade barriers overall, has had much lower unemployment rates than countries that impose higher barriers to trade.

Q: Don't foreign companies operating in the United States siphon off the wealth of Americans by sending their profits back home?

A: No, because sending profits back home represents only half of the money flow equation. Although foreign companies made about $15.6 billion in profits in 1996 from facilities located in the United States,¹⁷ foreign investors also spent some $69 billion in the U.S. economy—for a net investment in the U.S. economy of $53 billion.¹⁸

Q: Doesn't buying imports send too much American money overseas?

A: Only for a short time. Foreigners need U.S. dollars to buy U.S. goods or invest in the U.S. economy. No matter how many U.S. dollars go overseas, most eventually come back.

Q: Does the dramatic increase in the U.S. trade deficit over the past several decades mean that Americans are squandering their wealth overseas?

A: No. Trade deficits are more a sign of strength than a sign of economic weakness. The fact that the United States has a trade deficit does not mean there is something wrong with the U.S. economy; it means only that other countries make products Americans want to buy.

Q: Don't trade deficits with countries like Japan and China harm the U.S. economy and mean these countries are winning the economic war? Shouldn't we increase our barriers to imports from these countries to protect our own economy?

A: No. First, nations do not trade; people do. Second, trade is not "war."

Q: Won't Americans' standard of living be lowered because some foreign countries subsidize their domestic businesses to make their products cheaper to buy?

A: No. In fact, when a foreign country subsidizes the production of its own goods, it actually is subsidizing the living standards of Americans.

Q: Isn't free trade destroying America's manufacturing base and creating a service-oriented economy?

A: No. Today, in fact, the level of manufacturing as a percentage of GDP is essentially the same (about 21 percent)²⁰ as it was in 1967, and the number of Americans working in manufacturing jobs is about the same (approximately 10.5 million) as in the early 1960s.

Q: Shouldn't less-developed nations protect developing industries with trade barriers to make them more competitive in the international marketplace?

A: Not if they want economic growth. Countries that impose protectionist policies have lower levels of economic growth than countries that practice free trade. And freer trade generates greater levels of economic growth both here and abroad.