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75 percent of US trade growth during the period 1980 to 2005 can be explained by the general expansion
of the world economy (72 percent) and falling transportation costs (3 percent).

Evidently, policy liberalization has played an important role in trade growth. Moreover,
econometric evidence strongly indicates that trade growth
above and beyond the pace of GDP growth
furnishes a powerful engine that drives the world economy. Our analysis, along with the work of others,
demonstrates that policy liberalization supplies the lion’s share of this “extra” trade growth.

Tariff liberalization accounts for about 45 percent of “extra” trade growth. Preferential
and unilateral tariff liberalization have seemingly delivered more of a jolt than multilateral tariff
liberalization.20 Roughly speaking, the proportions are: 9 percent of the “extra” growth through
multilateral tariff liberalization; 18 percent through preferential liberalization; and 19 percent through
unilateral liberalization.21

NTB liberalization, as we measure it, also plays a large role in US trade growth—perhaps 44 percent
of the “extra” growth—but we are less certain of NTB data than tariff data. However, since the current
average level of NTB protection may be triple that of tariff protection (for US imports 7.5 percent
versus 2.5 percent), the importance of fresh NTB liberalization is substantial. Here is where multilateral
liberalization has achieved a great deal in the past and could prove to be the dominant force for future
NTB liberalization. The GATT and the WTO have sharply constrained quotas, technical barriers,
sanitary and phytosanitary barriers, and other NTBs. More progress on these and other NTB fronts can
be expected from future multilateral negotiations.

One surprising result, and a marked contrast from earlier decades, is that the decline in
transportation costs contributed only 11 percent to “extra” trade growth since 1980.

Going forward, policy liberalization will be critical to the future growth of US and world trade.

If policy liberalization grinds to a halt, a powerful engine of economic growth will also splutter. A great
deal of policy liberalization remains to be accomplished. Developing-country tariffs are far from zero, and
developed countries still have high tariff peaks that restrain trade. NTBs represent a formidable wall of
protection, and their removal would certainly boost trade.

20. The 45 percent role of tariff liberalization is determined by taking the impact of the Tokyo Round scenario in the
general equilibrium analysis ($275 billion) as a share of the “extra” trade growth ($605 billion), as determined by our CGE
calculations.

21. The 18 percent role of preferential tariff liberalization is determined by taking the impact of Scenario 4 ($109 billion)
as a share of the “extra” trade growth ($605 billion). The 19 percent role of unilateral liberalization is determined by
adding the difference between Scenario 1 ($171 billion) and Scenario 4 ($109 billion) to the difference between Scenario
2 ($275 billion) and Scenario 6 ($225 billion). Together, these two figures equal $112 billion, which is then expressed
as a share of the “extra” trade growth ($605 billion). The 9 percent role of multilateral liberalization is determined by
subtracting the effect of preferential ($109 billion) and unilateral tariff liberalization ($112 billion) from the impact of
Scenario 2 ($275 billion) to arrive at a figure of $54 billion. This figure is then expressed as a share of the “extra” trade
growth ($605 billion). Note that different arithmetic methods for evaluating the scenarios would suggest different roles for
the three types of liberalization.

15



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