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Open trade promotes economic prosperity

Buffalo is a town built on trade. In 1758, a French trader established the first European settlement in the territory. And after the War of 1812, Buffalo quickly rebuilt itself into a major trade center, the port connecting the West to trade with Europe through the Erie Canal and the Hudson River.

In the late 1800s, Joseph Hibbard began building steam engines in Buffalo and Joseph Dart invented the steam-powered grain elevator. New opportunities attracted immigrants to Buffalo, resulting in its population increasing from less than 10,000 in 1830 to more than 350,000 by 1900. The manufacturing base established by Hibbard, Dart and others depended heavily on sales of products built in Buffalo to other parts of the country and the world.

Buffalo's tradition as a hub for trade continues today. Hundreds of local companies depend on exports. Despite trade's enduring importance to Buffalo, there are some who feel the United States should erect tariff barriers to wall off our workers from foreign competition.

A prominent American once said, "With America's high standard of living, we cannot successfully compete against foreign producers because of lower foreign wages and a lower cost of production. [Lowering tariffs] would force Americans to compete with laborers whose wages are sufficient to buy only one-eighth to one-third of [what you] can buy." While this may sound like contemporary political rhetoric, these words were spoken by President Herbert Hoover, as he attempted to justify the Smoot-Hawley Tariff Act of 1930.

In the 1930s, Hoover and the protectionists won the argument, and the world paid a terrible price. Tariff walls were raised, America isolated itself and the misery of the Great Depression was deepened and prolonged. The United States achieved its intended goal of a trade surplus, but many Americans and people throughout the world suffered as a result.

Today, there is nearly universal consensus among economists that open trade promotes economic growth and prosperity. After World War II, the United States abandoned the failed policies of Smoot-Hawley and prospered as a result. The Institute for International Economics estimates that U.S. annual incomes today are $1 trillion higher than in 1945 because of trade liberalization.

In broad terms, we are simply better off when we are empowered to buy and sell goods and services, and make investments freely in the international marketplace. With such freedom, the wealth of productive resources in America flows to their greatest and most efficient use and our reward is a remarkably high standard of living. Compared to other high-income countries in the world, U.S. average per capita real income exceeds the average of other such high income countries by over 45 percent.

The alternative to open commerce is on display in protectionist economies around the world -- low productivity, low levels of innovation, high levels of unemployment, rising fears among people and employers about the future and declining living standards.

Consider the example of North and South Korea. A half century ago, the South -- historically the more rural and poorer part of the country -- embraced market-oriented economic reforms and turned outward to engage the rest of the world. In contrast, the North -- historically the industrial stronghold -- became insular and adopted a neo-mercantilist approach to its economy. Today, South Korea is a growing and dynamic force in the global marketplace, with a GDP of $1 trillion and fast-growing per capita income. North Korea, meanwhile, is a bastion of human misery.

Since the end of the Cold War, 2 billion new workers have joined the world's economy. This expansion certainly creates challenges, but every challenge also represents an opportunity. These individuals are potential consumers of American products, but are also people who want to emulate U.S. democratic and economic traditions. Free and fair trade does not mean we compete with other countries over a single piece of pie, it means the pie gets bigger.

The problem with foreign competition is not that our markets are open, but that too many foreign markets are closed. U.S. goods, farm products and services face numerous barriers around the world. Reducing trade barriers abroad will give our farmers, ranchers, manufacturers and service providers better access to the 95 percent of the world's customers who live outside our borders.

Since 2001, the United States has pursued a policy of opening foreign markets through the negotiation of comprehensive free trade agreements. In that time, Congress has approved FTAs with 12 countries. The results are astonishing. Exports to our new partners are growing twice as fast as U.S. exports to the rest of the world. The United States ran a $12 billion goods surplus with these FTA partners in 2005, with total goods exports of $42.3 billion, compared to total imports of $30.4 billion. Together with Israel, Canada and Mexico, these new free trade alliances are beginning to form a critical mass for the stimulation of trade-led growth.

America's prosperity and Buffalo's future will be built on trade with other countries. Trade fuels economic growth, supports good jobs at home, raises living standards and helps Americans provide for their families with affordable goods and services.

John Veroneau is Deputy U.S. Trade Representative.

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