E C O N O M I C R E P O R T O F T H E P R E S I D E N T

In short, increased globalization benefits the United States and othereconomies. Globalization yields gains from trade, through specialization andthrough realization of scale economies in production. And by allowing capitalto flow across borders, it lowers the cost of financing investment in therecipient country, increases the return to saving, and allows for portfoliodiversification in the country providing the funds. Both trade and investmentcontribute to the flow of knowledge and transfer of technology.The Challenges of GlobalizationThe United States has long sought to extend the benefits of trade andinvestment as widely as possible, both within and among countries, but significantchallenges remain. The United States is committed to expandingtrade and investment opportunities around the world. It is also committed toputting a human face on the global economy, in part through greater considerationof labor and environmental concerns and more openness in WTOproceedings. For all the evidence that trade raises living standards, some U.S.industries and their workers may face difficulties adjusting to more openmarkets. Economists attribute only a small share of worker dislocation(roughly 10 percent or less) to trade, but crafting sound domestic policy tohelp ease the transition for those affected poses another important challenge.The emerging market financial crises of 1997-99 highlight yet another challenge:the risk that sudden reversals in capital flows can in some cases bedestabilizing. Finally, the growing U.S. trade deficit raises the challenge ofensuring not only that the United States remains an attractive location forinvestment, but also that Americans are saving enough for the future.Spreading the Benefits of TradeThe United States has sought to open markets, extend the rule of law, andencourage economic growth internationally through bilateral, regional, andmultilateral trade agreements. The multilateral trading system, consistingoriginally of the GATT and more recently the WTO, is at the core of theseefforts. Although its achievements have been considerable, this systemremains a work in progress. The recent difficulty in establishing a mandatefor a new round of WTO negotiations, and the public protest accompanyingthe WTO Ministerial in Seattle, give a sense of the challenges that lie ahead.Many countries continue to maintain high trade barriers, especially inagriculture and services, but institutional concerns, such as those relating tothe WTO’s accessibility and transparency and to its relationships with internationallabor and environmental organizations, have come increasingly toChapter 6 | 217