International trade agreements lower barriers to business and create new opportunities to succeed in a globalized economy. They reduce or eliminate tariffs and quotas, facilitate investment flows, establish new standards for intellectual property, and open markets to trade in goods, services, and digital commerce.
As a result, the economic benefits of trade agreements are clear: a greater ability to sell products and services abroad increases a company’s competitiveness, generates revenue and profits, and supports higher-paying jobs for a more diverse middle class. These benefits are especially important for companies in the United States, where the majority of manufacturing jobs are supported by foreign sales.
At the same time, it is critical to recognize that not all trade agreements are created equal. Some benefit US manufacturers more than others, depending on the terms and conditions of each agreement. This is largely due to the WTO’s “most-favoured-nation” (MFN) rules, which require countries to treat all other WTO members equally when they lower or remove trade barriers or open their markets.
A significant problem with some FTAs is that they can divert trade from more efficient nonmember exporters to less-efficient member exporters, in what economists call “trade diversion.” This has the potential to harm the importing country’s economy, by increasing the cost of imported goods. Fortunately, this is generally avoided in FTAs because of a rule known as the “national treatment of nontariff restrictions” that requires trading partners to treat imported and domestically-produced goods alike, except where national security or public health reasons exist.