By Dr. Andreas Udbye
University of Puget Sound, Seattle, WA
Washington State DEC
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As of 2015, the United States has Free Trade Agreements (“FTA’s”) with twenty partner countries. The main purpose of these agreements is to promote bilateral trade in the form of exports and imports. Their success can be gauged by measuring whether the FTA’s boosted trade at a higher rate than that with comparable non-FTA countries. This paper investigates whether the exports and imports between the U.S. and the twenty partner countries showed higher growth rates after the implementation of the FTA’s, and whether the growth rates were individually and collectively higher than compared to a control group consisting of 82 non-FTA trading partners. The measuring tool is Compound Annual Growth Rates (CAGR). Simpler than an econometric model based on gravity theory, and more accurate than comparing average growth rates, the CAGR is a suitable comparison measure. Older studies investigating international FTA’s have used versions of the gravity model to show significant increases in bilateral trade following the agreements. Unlike this report, none of those studies focused solely on the FTA’s that the U.S. has entered into over the past twenty years.
Compared to the control group, our analysis shows a positive effect of the FTA’s on U.S. exports, but a slightly negative effect on imports. Some of the FTA’s are only a few years old, and a complex global macroeconomic scene over the past ten years makes it harder to generalize. Each country has a different economic story to tell. However, from a trade policy standpoint it may appear that the FTA’s have the intended, incrementally positive effect on U.S. exports. While FTA’s may have significant positive or negative effects on specific sectors and industries, they do not appear to cause dramatic improvements in bilateral trade. In the conclusion of the paper we offer some possible reasons for the FTA’s lackluster performance.
