Changing World Trade Patterns and America's Leadership Role

Although the Kennedy Round of General Agreement on Tariffs and Trade (GATT) negotiations substantially lowered the tariff rates on industrial products, the gains of the past decade are threatened by a rising tide of protectionism and by curbs on the movement of international capital and business enterprise. Significant progress towards world economic integration will require both the reduction of barriers to trade, especially the elimination of nontariff barriers such as import and export quotas, and the elimination of restrictions on the movements of capital and enterprise between countries.. There is a need for a bold and dramatic approach to the liberalization of commodity and factor movements in place of the traditional trade-agreements approach. Such an approach might take the form of an agreement among the industrialized countries to reduce their tariffs to zero over a specified period of time, or for the creation of an Atlantic Free Trade Area. Future agreements must also deal with international capital movements and balance-of-payments adjustment. If the United States is to play a leadership role in a movement toward freer trade and capital movements, it must be freed from its overwhelming concern with its balance of payments. So long as the United States and its major industrial partners employ trade and capital controls as the primary means of dealing with balance-of-payments disequilibria, it is not going to be possible to pursue policies directed toward the optimum allocation of resources. Controls are nearly always established for temporary periods, pending the operation of more fundamental forces of adjustment. But the controls themselves assure their own perpetuation by preventing market forces from operating.