Doha Round Does Little for Trade Deficit Reduction

New study from University of Maryland says current round of negotiations does little to solve record trade level deficit. Compiled by staff

Published on: Apr 13, 2006

A new report from the University of Maryland - College Park suggests that a successful round of World Trade Organization talks may bring little benefit to American farmers and manufacturers or the overall trade deficit.

Professor Peter Morici's report, "The Doha Round: No Help for America's Trade Deficit?" concludes that U.S. agricultural exports in 2005 would have increased only slightly by about $3.0 billion if the deal was in place - miniscule compared to the $724 billion trade deficit.

The report warns that the trade deficit imposes a tremendous drag on the U.S. economy, and that this current round of negotiations does little to solve this important problem.

"The continued economic prosperity of the United States demands that we reduce our trade deficit significantly," says Morici. "A key to continuing the economic prosperity of the United States, as well as the countries we trade with, would be for us to discuss what is necessary to bring the trade deficit down to sustainable levels. Unfortunately, nothing being negotiated in the Doha Round is likely to accomplish this."

Morici says a "successful" Doha Round could actually hurt farmers growing some of America's most important export crops. The report shows that, if the current Doha proposals had been in effect in 2005, exports of soybean and soybean meal - the U.S.'s largest agricultural export - would have cost soybean farmers $207 million. Cotton exports would also have suffered, driving down export revenues and costing the American cotton industry $127 million. The report also finds that exports of U.S. manufactured products would see only marginal benefits from tariff reductions by developing countries.

Morici shows that China will be the biggest winner from the Doha Round. Lower tariffs on its manufactured goods will allow China to increase its exports, at the expense of industries in the United States and in developing countries.

Although it will benefit the most from the Doha Round, China is being asked to make few real concessions in return. Meaningful concessions from China could translate to lower trade deficits for the U.S.

The report identifies several factors that underlie the huge and growing U.S. trade deficit, including China's manipulation of its currency and international tax rules that discriminate against U.S. exports. China keeps the value of its currency artificially low to make exports cheaper and imports more expensive.

"Other countries must do the same to stay competitive," explains Morici. The report states that obtaining a fair resolution on this issue should be the primary objective of U.S. negotiators in this round.

The report also warns that if these negotiations result in weaker countervailing and anti-dumping laws, it will be tantamount to unilateral disarmament in the trade arena by the United States.

"While the Round may offer very modest benefits," Morici concludes, "it will not result in any significant reduction of the U.S. trade deficit. The negotiations represent a lost opportunity by the United States to obtain real international action that would restrict currency manipulation and other practices that truly restrict the growth of free trade. Unless we address these practices, the growing trade deficit may ultimately erode public support among Americans for trade liberalization."