It may be easier for America to maintain its top-level status in global trade by working inside group regional trade agreements, rather than making individual deals outside such RTAs, Professor Tomas Hult wrote recently in his blog for an Eli Broad College of Business international business Web site.
Tomas Hult
“Everyone is watching out for China, and to some degree India, and the United States can and should reassert its trade-leading policy and global position by engaging in more RTAs,” Hult said in his blog for GlobalEDGE, created by the International Business Center. “Being an insider in these RTAs is always better than being an outsider negotiating bilaterally (assuming free and fair agreements are signed in the first place – which is at the core of today’s policy debates).”
“Overall, there are tremendous ‘global efficiencies’ to be realized by engaging in more free and fair trade agreements, and hopefully the United States can actively seek out and implement more than its 14 current trade agreements,” he said. “After all, we expect the value of world trade to be about 167 times larger in 2020 than it was in 1960, and the world economy to be 65 times larger in the same span.”
“And, the reason trade is carrying more value than what is being manufactured has to do with cultivating global efficiencies. Participating in regional trade agreements is one major driving force in realizing these production efficiencies,” Hult said.
The issue has particular resonance as of late, as the United States has shed its embrace of such RTAs with groups of countries in favor of pursing bilateral trade deals with individual nations. The U.S. is seeking a renegotiation of the North American Free Trade Agreement with its continental neighbors, and chose not to enter the Trans-Pacific Partnership pact with a host of Far East countries.
“Most countries, and logically all countries, have the potential to benefit from regional trade agreements. Well-defined RTAs are in fact often better than comprehensively defined bilateral agreements, Hult wrote. “A comprehensive bilateral trade agreement increases cumulative trade across countries, which is good, but also run the risk of less successful companies competitively going out of business. More narrowly defined bilateral and regional agreements protect certain industries (and companies) from undue competitive market forces (e.g., agriculture).”
Hult wrote, “There is no doubt that the contribution of the United States to the world economy is immense. But, there is also no doubt that the share of U.S. production and financial influence has declined rapidly – from some 40 percent of the world’s output in 1960 to less than 20 percent today. In that same time span, we have seen 299 Regional Trade Agreements go into force, but the United States only engaging in a few,” potentially putting the U.S. at a disadvantage outside of such groups.
Hult is the Byington Endowed Chair of the Department of Marketing, a professor of marketing and international business, director of the International Business Center at the Broad College, and executive director of the Academy of International Business at MSU.
Hult is a frequently-cited scholar of international business, and opinion pieces he has authored have previously been published and shared by Time magazine, Fortune magazine, and the World Economic Forum, among others.
