NCPA - National Center for Policy Analysis

Free Trade Boosts Incomes, Reduces Hunger

November 12, 2014

How much free trade does the United States have? According to a report from the Heritage Foundation and the Wall Street Journal ranking trade freedom around the globe, the United States ranks fortieth -- tied with Peru -- with a score of 87. Scores ranged from zero (North Korea), 41.4 (Iran) and 44 (Seychelles) up to 90, a first-place score earned by Hong Kong, Liechtenstein, Macau, Singapore and Switzerland.

Free trade -- the sale and purchase of goods free of tariffs and similar barriers -- has blossomed over the last half-century. In 1947, Riley and Miller note that the average tariff rate in industrial nations was 40 percent; today, that number is below 3 percent. The development of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization led to a great deal of global trade liberalization, but countries have also made efforts to reduce trade barriers on their own or negotiate trade deals with one another. Since the creation of the WTO, more than 200 bilateral and regional free trade agreements have been implemented.

Bryan Riley and Terry Miller of the Heritage Foundation explain what free trade means for economies: it creates economic growth, increases food security and is associated with higher environmental quality. According to their report:

  • Countries with higher trade freedom have significantly stronger economies. The average per capita income in countries scoring in the top third for trade freedom is $28,155, compared to $5,090 in countries in the middle third and $3,420 for those at the bottom.
  • Countries in the top third for trade freedom have lower hunger indexes than those with poor trade freedom scores.
  • Countries with higher levels of trade freedom have higher environmental performance index scores, meaning that they have cleaner environments.           

As reducing trade barriers have such positive impacts on people in those countries, Riley and Miller encourage governments to negotiate global trade deals in addition to bilateral and regional agreements.

Source: Bryan Riley and Terry Miller, "2015 Index of Economic Freedom: Why Trade Matters and How to Unleash It," Heritage Foundation, November 6, 2014.

 

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