President

worth of services to their foreign affiliates, 79 percent more in nominal termsthan in 1997. Services exports from U.S.-based affiliates of foreign companiesto their foreign parent companies grew even faster. In 2006, these affiliatessold $30.2 billion worth of services to their foreign parent companies, a175-percent nominal increase from 1997.The Benefits of Trade and ExpandingExport MarketsPromoting free trade is a top priority of this Administration. Tradeliberalization, whether it involves multilateral agreements that lower barriersamong all the world’s countries, or bilateral agreements that permit deeperintegration such as by harmonizing laws or institutions, provides a host ofeconomic benefits: lower prices and expanded consumer choice, a largermarket for U.S. exports, increased domestic productivity, and closer ties topeople and nations around the world. Economists often emphasize the gainsfrom trade from importing goods and services that are relatively more difficultfor the domestic economy to produce, but there are also benefits to be gainedthrough exporting.International trade involves transactions between individuals or firms thatreside in different countries. As in any voluntary transaction, the participantsin international trade expect to benefit because they value what they receive inthe exchange more than what they give. The gains in each individual transactionthen aggregate into gains for the economy as a whole. The United Statesbenefits from exporting because it allows us to trade goods that are abundantin national production for goods that are relatively more costly to producedomestically.Another benefit of policies that encourage free trade and expand markets isthat trade encourages specialization and the division of labor. Specializationprovides near-term benefits because economies have different endowmentsof resources and their workforces possess different skills and talents. Forexample, the United States has a relatively large population of highly skilledworkers, but very little tropical land. As a result, the United States exportsbusiness and financial services to the world and imports coffee from a varietyof tropical countries, such as Colombia.Specialization raises the living standard for the average citizen becauseit allows people to consume more goods and services. Exporting allows aneconomy to use its relatively abundant resources to produce goods and servicesand export them to economies where the resources required to produce suchgoods and services are relatively scarce. Because goods are shipped to marketswhere they are relatively scarce, the United States receives a higher price forChapter 3 | 91