In trade agreements such as NAFTA, CAFTA or the proposed FTAA, the big prize that the United States offers to its trading partners is greater access to the U.S. import market. In exchange for such access, the United States has demanded a long list of concessions from developing countries, including greater protection for foreign investment, the elimination of rules on government procurement that favor domestic businesses, and increased protection for U.S. patents and copyrights.
A rapidly growing import market in the United States has offered some developing countries a path to growth. From 1991 to 2003, there was a $780 billion (measured in 2003 dollars) average annual increase in the amount of goods and services imported into the United States. This rapid growth in U.S. imports created a vast market that some developing countries, most notably China, used as a springboard for growth and development. In a period in which most developing countries have fared poorly, it is understandable that many would seek to replicate China’s success by increasing their exports to the U.S. market.
However, developing countries intending to utilize the export strategy will now have to contend with a shrinking U.S. import market. Using standard assumptions about the growth of U.S. exports and other economic variables, U.S. imports are projected to drop an average of $160 billion annually between 2003 and 2013 (in 2003 dollars). Instead of moving into a rapidly growing market, any inroads by developing countries into the U.S. import market will come at the expense of other countries that are already exporting to the United States, such as China and Mexico. Competing for a larger slice of a shrinking pie is not likely to offer much promise for developing countries.
The basic logic of this projection is very simple and irrefutable. The United States is currently running a trade deficit that exceeds 5% of GDP. Such a substantial deficit cannot be sustained for long. At present, the United States is selling off its assets (stocks, bonds, deposits, etc.) to cover this deficit. These assets are paying interest, dividends and profits to foreign wealth holders—creditors and stockholders. As the U.S. debt grows, the payments to foreign wealth holders increase. Consequently, the trade deficit must be reduced or the current account deficit—the trade deficit plus the net outflow of payments to foreign wealth holders—will escalate to unsustainable levels.
Our analysis uses assumptions that optimistically minimize the size of the U.S. debt over the next decade. These assumptions still point to the likelihood of U.S. imports falling sharply over this period. A less optimistic set of assumptions shows U.S. imports falling by as much as $375 billion a year over the next decade. The most optimistic scenario shows a $90 billion annual decline in imports by 2013. Under any plausible scenario, the U.S. import market will shrink in the next decade. In short, if the primary motivation of developing countries to sign trade agreements with the United States is to gain access to the U.S. import market, then they are in for a rude awakening.
About the Authors
Dean Baker and Mark Weisbrot are both from the Center for Economic and Policy Research (CEPR). This piece is based on a longer article they wrote. For the full article go to http://www.cepr.net.
