[Economic Report of the President (2005)]
[Administration of George W. Bush]
[Online through the Government Printing Office, www.gpo.gov]

 
OVERVIEW

In 2004, the U.S. economic recovery blossomed into a full-fledged
expansion, with strong output growth and steady improvement in the
labor market. Real gross domestic product (GDP) grew by 4.4 percent
in 2004 for the year as a whole. About 2.2 million new payroll jobs
were created during 2004-the largest annual gain since 1999. The
unemployment rate fell to 5.4 percent by year's end, below the
average of each of the past three decades. Inflation remained
moderate, especially excluding volatile energy prices. The U.S.
economy is on a solid footing for sustained growth in the years to
come.
This is a marked reversal from the economic situation the Nation
faced when President Bush came into office. Four years ago, the
economy was sliding into recession after the bursting of the high
-tech bubble of the 1990s. The economy was then affected by
revelations of corporate scandals, slow growth among our major
trading partners, and the terrorist attacks of September 11, 2001.
Business investment slowed sharply in late 2000 and remained soft
for more than two years. The economy lost over 900,000 jobs from
December 2000 to September 2001, and then almost another 900,000
jobs in the three months after the 9/11 attacks.
Prompt and decisive policy actions helped to counteract the effects
of these adverse shocks to the economy. Substantial tax relief
together with expansionary monetary policy provided stimulus to
aggregate demand that softened the recession and helped put the
economy on the path to recovery. In addition to providing timely
short-term stimulus, the President's pro-growth tax policies have
improved incentives for work and capital accumulation, thereby
fostering an environment conducive to long-term economic growth.
This Report discusses macroeconomic developments of the past year,
the Administration's forecast for the years to come, and several
topics related to salient economic issues.

The Year in Review and the Years Ahead

Chapter 1, The Year in Review and the Years Ahead, reviews economic
developments in 2004 and discusses the Administration's forecast for
2005 to 2010. Solid economic growth continued in 2004, and the
Administration's forecast calls for further expansion in 2005, with
real GDP growing faster than its historical average and the
unemployment rate continuing to decline. The economy is expected
to continue on a path of strong, sustainable growth.
Real GDP expanded by 3.7 percent during the four quarters of 2004,
and by 4.4 percent for the year as a whole compared with 2003. The
solid advance in real GDP during 2004 was supported by gains in
consumer spending, business fixed investment, and, to a lesser
extent, housing investment, inventory accumulation, and government
spending. Net exports (exports less imports) held down growth in
all four quarters as the trade deficit rose in the third quarter
to a record high as a percentage of GDP. Progress toward
strengthened economic growth among U.S. trading partners led to an
increase in exports, but imports continued to outpace exports as
U.S. domestic demand and demand for imported oil remained strong.
The economy's strong growth performance came about in the face of
higher oil prices, which likely reduced growth somewhat during the
year. The Administration expects real GDP to grow 3.5 percent during
the four quarters of 2005, in line with the consensus of
professional forecasters. This growth is expected to be driven by
continued gains in consumer spending, investment growth, and
stronger net exports.
The labor market strengthened during the year. The unemployment
rate, which declined 0.5 percentage point to 5.4 percent by the end
of 2004, is projected to edge down further to 5.3 percent by the
fourth quarter of 2005. Nonfarm payroll employment, which grew
about 180,000 per month during 2004, is projected to grow about
175,000 per month in 2005, in line with other professional forecasts.
Inflation increased from the extremely low levels of 2003, partly
because of rapid increases in energy prices. Inflation as measured
by the consumer price index excluding food and energy remained in
the moderate 2 percent range, and inflation expectations remain low.
The economy made these advances even as energy prices soared, the
Federal Reserve raised interest rates, and the demand-side effects
of fiscal policy stimulus began to recede in the second half of
2004. This continued growth indicates that the economy has shifted
from a policy-supported recovery to a self-sustaining expansion.

Expansions Past and Present
Chapter 2, Expansions Past and Present, compares the current
economic expansion to previous expansions. The current expansion
and the previous one that started in 1991 followed especially
shallow recessions, and both exhibited relatively moderate overall
growth in key economic variables. Shallow recessions typically are
followed by shallow recoveries and deep recessions by robust
recoveries. The recent recession stands out in that there were no
consecutive quarters of decline, with revised data showing that
real GDP dropped in the third quarter of 2000 and the first and
third quarters of 2001, but grew in the intervening quarters.
Consumption and residential investment continued to grow throughout
the recession, while business investment fell sharply in the
recession and continued to decline for five quarters after the
overall economy had bottomed out. Both of these developments likely
reflect the important role of fiscal and monetary stimulus in supporting household demand and the unusual extent to which the recession
resulted from a collapse in investment following the bubble of the
late 1990s. The relationship between firms' abilities to invest and
the state of economic activity has been deemed the ``financial
accelerator,'' in that changes in activity affect firms' ability to
invest and this in turn further affects activity, in a way that
tends to accentuate economic fluctuations. Fiscal and monetary
policy actions have counterbalanced these forces. Without the boost
to disposable income from tax relief, the recession would have been
deeper and longer.
The relatively weak payroll employment growth in the initial stages
of the current expansion likely reflects both the shallowness of
the recession and the unusually strong growth of productivity in
the recession and expansion. In an average expansion before the
1990s, employment recovered along with output at the start of the
expansion and regained its previous peak about three quarters after
the trough. In the expansion of the 1990s, however, employment
continued to fall for two quarters after the expansion had
commenced and did not reach its previous peak value until another
six quarters had passed. In the most recent expansion, employment
continued to fall for seven quarters after the recession had ended
and regained its prerecession level only at the beginning of 2005,
some 12 quarters after the end of the recession.
The moderate employment growth reflects especially strong
productivity growth during the current expansion. Productivity
growth has averaged 4.2 percent per year at an annual rate in the
most recent expansion, up substantially from the 2.5 percent growth
rate seen on average from 1995 to 2000. In the short run, greater
productivity growth sets the bar higher for employment growth. With
increased productivity, a given amount of output can be produced
with fewer hours worked, so real GDP must grow more quickly for
employment to grow. In the long run, however, higher productivity
growth leads to higher income per person, and will thus be expected
to be positive for employment growth.
That the recent recessions and expansions have been especially
moderate suggests the possibility that the economy has become more
stable in general. If so, then part of this stability is likely
attributable to more active and timelier stabilization policy.
Other factors possibly contributing to a more stable economy
include improved inventory management that lessens the volatility
of production changes, and the ongoing shift in the U.S. economy
toward the service sector, the output of which has typically been
more stable than the production of goods.

Options for Tax Reform
Chapter 3, Options for Tax Reform, discusses why tax reform is
vital to a stronger economy, and examines several basic prototypes
for reform. The President has not endorsed any specific proposal,
and the chapter does not advocate the adoption of any particular
prototype for reform.
The current Federal tax system is unnecessarily complex and
distorts incentives for work, saving, and investment. In addition
to the dollar amounts of taxes paid, the tax system imposes two
indirect burdens on taxpayers and on the U.S economy as a whole:
the costs (in time and money) of complying with tax rules and the
costs (including slower economic growth) of tax-induced distortions
of economic activity. The Internal Revenue Service estimated that
for tax year 2000, individual taxpayers spent 3.2 billion hours on
tax compliance, an average of 25.5 hours per return, and spent $19
billion on tax preparers, computer software, and similar expenses.
High tax rates reduce incentives for work, saving, and investment,
distort economic decisions, and divert resources from productive
activity into tax avoidance, ultimately reducing economic growth
and lowering living standards. High tax rates lead people to work
less, to take their compensation in nontaxable forms such as health
insurance, and to alter their portfolios to focus on tax-favored
investments. The current tax system also distorts many business
decisions, resulting in inefficient use of resources and reduced
economic output. Double taxation of corporate income raises the
cost of capital and would therefore be expected to have an adverse
effect on investment. Double taxation further leads firms to
finance investment with debt instead of equity, creates a bias in
favor of using business forms such as partnerships and subchapter S
corporations that are not subject to the double tax, and
discourages paying dividends. The Jobs and Growth Tax Relief
Reconciliation Act of 2003 (JGTRRA) reduced this double tax by
reducing the individual income tax rates for both dividends and
capital gains, and appears to have led to a sizable increase in
dividend payments by firms.
Tax reform proposals generally follow either the principle of
taxing consumption or the principle of reforming the existing
system to conform more closely to a pure income tax.
Most proposals for tax reform involve variations on a few basic
types of taxes. The main types of consumption taxes are the retail
sales tax, the value added tax, the flat tax, and the consumed
income tax. The retail sales tax imposes tax liability when an
individual purchases goods or services for consumption, whereas the
value added tax levies tax on the same base but the tax is collected
instead on the value added to the good or service at each stage of
its production. The flat tax consists of a business tax and an
individual-level tax, both with a single flat tax rate, in which
wages are taxed at the individual level rather than being included
in the business tax base. This allows for building progressivity
into the system by providing an exemption of, say, $40,000 for a
family of four. While these taxes appear to be quite different,
they are equivalent from an economic standpoint because consumption
is the overall tax base in each case.
Important benefits could also be obtained through simplification and
reform of the current tax system. A reformed version of the current
system would reduce transition and adjustment costs, and
considerable benefits could be obtained by simplifying and
rationalizing tax provisions that overlap or are otherwise overly
complex.
The Administration's tax program has already significantly reformed
the tax system. Achievements include lowering marginal tax rates,
reducing the double tax on corporate income, simplification, and
improved fairness for families. The tax relief passed during the
President's first term also increased the overall progressivity of
the Federal tax system. The bottom 40 percent of the population in
terms of income received the largest percentage reductions in total
Federal taxes, and the share of taxes paid by the top 20 percent in
terms of income increased as a result of the tax cuts enacted since
2001.
Possible additional reforms would be to lower tax rates further and
broaden the base; rationalize the current multitude of saving
incentives; further reduce or eliminate the remaining double
taxation of corporate income; and simplify the complex system of
depreciation rules. Reform within the current system would also
address the Alternative Minimum Tax (AMT), which adds considerable
complexity, and which, under current law, is expected to affect a
rapidly growing number of taxpayers over the next five years.
Although tax reform has been discussed for many years, it is a
particularly pressing need at the current time. Increasing numbers
of taxpayers will be affected by the Alternative Minimum Tax, which
will be a major source of frustration and complexity. In addition,
the tax reductions enacted since 2001 will expire in a few years
unless they are extended or a new, reformed tax system is adopted.
If these provisions are allowed to expire, the result will be
substantial increases in taxes on taxpayers in all income groups,
with the largest percentage increases being imposed on lower- and
middle-income households.

Immigration
Chapter 4, Immigration, examines the economic impact and
implications of immigration. In recent decades, the United States has experienced a surge in immigration not seen in over a century.
Immigration has touched every facet of the U.S. economy and, as the
President has said, America is a stronger and better Nation for it.
A comprehensive accounting of the benefits and costs of immigration
shows that the benefits of immigration exceed the costs.
Immigrants have settled in all parts of our Nation and have
generally succeeded in finding jobs quickly, helped in large
measure by the flexibility of the U.S. labor market. One indicator
of this success is that foreign-born workers in the United States
have a higher labor force participation rate and a lower
unemployment rate than foreign workers in most major immigrant-
receiving countries.
While flexible institutions may speed the economic integration of
the foreign-born, the distribution of the gains from immigration
can be uneven. Less-skilled U.S. workers who compete most closely
with low-skilled immigrants have experienced downward pressure on
their earnings as a result of immigration, although most research
suggests these effects are modest. Also, communities contending
with a large influx of low-skilled immigrants may experience an
increased tax burden as immigrant families utilize publicly provided
goods such as education and health care.
U.S. immigration policy faces a complicated set of challenges,
perhaps more so now than ever before. Policy should preserve
America's traditional hospitality to lawful immigrants and promote
their economic contributions. Yet these goals must be balanced with
the Nation's many needs, including the imperative for orderly and
secure borders. These challenges have only grown in a post-9/11
world. The persistence of undocumented immigration and problems with
employment-based immigration suggest that current policy falls
short in addressing the demand for immigrant workers and the need
for national security. The President's proposed Temporary Worker
Program recognizes these problems and would implement necessary reforms.

Expanding Individual Choice and Control
Chapter 5, Expanding Individual Choice and Control, examines the
role played by property rights in providing the link between
people's effort and their reward. Having property rights allows
people to know that they will reap the rewards of their efforts and
entrepreneurship.
When used in economics, the term resource refers not just to
natural resources, such as land or clean air, but to anything of
value, such as skills. A property right refers broadly to the
arrangements society uses to assign people control over resources.
Property rights have a variety of names, including deeds, titles,
permits, vouchers, allowances, or accounts. Patents and copyrights
are also property rights, establishing control over inventions,
books, songs, and other creative concepts. The essential idea is
the same in each case: the owner of the property right controls how
something valuable is used.
That control is defined using a bundle of specific rights. The
bundle is commonly thought to consist of three main elements: the
right to exclusive use of the resource, the right to income derived
from the resource, and the ability to transfer those rights.
Property rights can include a range of those elements, from weak
rights (which might only include the right to use the resource) to
strong rights in all three elements.
Property rights have a profound effect on the choices people make.
In addition to giving them the incentive to maintain and invest in
things, people will use resources more prudently if they own them.
Property rights are essential for markets to function. The lack of
a clear title might prevent a car purchase. A home buyer is
unlikely to sign on the dotted line if she is not sure that the
seller actually owns the house. Without property rights, would-be
entrepreneurs cannot secure loans they might need to help their
businesses grow.
Property rights are essential to the efficient operation of markets,
which in turn allocate resources to their most highly valued use.
Clearly defined rights are important in avoiding overuse of
resources and in encouraging the improvement of resources. Property
rights further provide incentives to invest in, maintain, and
improve resources over time. The benefits of homeownership come
about because individuals have control and responsibility over
their property and their lives.
The thoughtful application of property rights has already brought
about a number of policy improvements. Introducing a property-rights
regime for air quality reduced emissions almost 30 percent more
than the required level and achieved annual cost savings estimated
at hundreds of millions of dollars per year. The use of property
rights for fisheries has mitigated overfishing while increasing
commercial fishermen's profits and promoting a more stable industry.
The application of property rights to education has facilitated
greater school choice and improved student performance. These uses
of property rights have given control to people with the best
information and incentives to use the resources in question.
Providing people with ownership, individual choice, and control of
assets could help address several current concerns. Giving families
more control over their retirement by establishing personal
retirement accounts they actually own would improve the Social
Security system. Offering people greater control over the money used
for their health care would reduce health care spending and increase
the number of people with health care insurance. Providing countries
greater ownership (that is, more control) over how they use the
development assistance they receive will make them active partners
in the programs funded.

Innovation and the Information Economy
Chapter 6, Innovation and the Information Economy, provides an
overview of recent developments in information technology and
discusses some of the economic issues relevant to this especially
dynamic sector of the economy. Innovation and information
technology are increasingly key contributors to economic growth and
productivity. Our Nation's growing prosperity depends on fostering
an environment in which innovation will flourish.
Information technology has made many workplace tasks easier,
boosting people's productivity. One recent study finds that labor
productivity in the nonfarm business sector grew at an annual rate
of 2.4 percent from 1996 through 2001, and attributes nearly three-
quarters of this growth to the accumulation of information technology
capital together with improvements in how people use this capital.
Of the 2.9 percent growth in real gross domestic product (GDP) in
2003, some 0.8 percentage point was attributable to
information technology.
A key development of the growing information economy is that more
people are using computers and communicating over the Internet.
Usage of the Internet includes email and the rapid growth of
e-commerce, which includes transactions with consumers and
transactions between businesses. Consumers have benefited from
e-commerce through the greater variety of goods available online and
through the additional competition and lower prices resulting from
the spread of e-commerce. A downside is the rise of online theft,
vandalism, and fraud. The Administration has taken actions to
protect property rights and ensure that the Internet and other new
technologies are safe venues for commerce.
The process by which innovations such as the Internet come about
involves the invention, commercialization, and diffusion of new
ideas. At each of these stages, people are spurred to action by the
prospect of reaping rewards from their investment. Government thus
has an important role to play in defining and protecting property
rights in intellectual and physical capital so that entrepreneurs
will be spurred to innovate.
In a free market, innovators vie to lower the cost of goods and
services, to improve their quality and usefulness, and-most
importantly-to develop new goods and services that promise benefits
to customers. An innovation will succeed if it passes the market
test by profitably delivering greater value to customers.
Successful innovations blossom, attracting capital and diffusing
rapidly through the market, while unsuccessful innovations can
wither just as quickly. In this way, markets allow capital to flow
to its highest-valued uses. Competition drives the broad diffusion
of innovative low-cost, high-quality information services. This has
held true in markets for mobile wireless telephones, satellite
television, and dial-up and broadband Internet services.
This engine of growth can falter, however, if government policies
distort the market signals that guide innovative activity.
Well-meaning policies to promote the diffusion of a service or
foster entry into new markets can have unintended consequences. A
policy to subsidize an existing service so that more people will
consume it can deter development of innovative new services that
people might otherwise prefer. In addition, potential pioneering
investors forced to share the fruits of their investment with new
entrants would find it less profitable to invest in the first place,
and a new market may never be developed. As circumstances change and
industries evolve, existing government regulations may need
rethinking. In particular, economic regulations aimed at correcting
an absence of competition may lose their rationale when competition
from new technologies emerges.

The Global HIV/AIDS Epidemic
Chapter 7, The Global HIV/AIDS Epidemic, examines the economic
issues posed by the acquired immunodeficiency syndrome (AIDS)
epidemic. The disease has already killed over 25 million people, and
currently over 40 million people are living with the human
immunodeficiency virus (HIV), the virus that causes AIDS. The chapter
discusses the nature of the crisis, its consequences, and what
governments can do to create affordable access to existing treatments
while encouraging research toward the development of new medical
therapies to combat this disease.
The impact of HIV/AIDS varies across the world, both in terms of
the scale of the epidemic and the ability to treat infected
individuals. Less-developed countries are particularly hard hit on
both accounts. Almost two thirds of all people with HIV live in
sub-Saharan Africa, a region that makes up only one tenth of the
world's population. At the same time, few infected individuals in
the region receive adequate treatment for the disease.
While the disease's impacts on human health and mortality are
widely recognized, the HIV/AIDS epidemic also has devastating
economic consequences that exacerbate the humanitarian crisis. AIDS
deepens poverty, intensifies food shortages, and, in some cases,
erases decades of economic progress. HIV/AIDS-related illnesses
directly decrease the income of an affected household. Even if an
infected family member is able to work, a sick worker is likely to
be less productive than a healthy one. The disease predominantly
affects the working-age population, and thus can leave too few
people to support the aging and young populations. AIDS can also
impose debilitating costs on other members of a household, for
example as other family members may need to miss work or school to
care for a patient. The disease can further change the way that
affected families make long-term decisions, because they do not
expect family members to live as long and because their needs become
more immediate due to pressing health concerns. As a result,
children may be pulled out of school in order to supplement the
declining family income, resulting in a loss in the children's
future earning potential. Impacts such as this can combine to
create a vicious cycle of increased poverty in the short run and an
inability of households to improve their condition in the long run.
The President has made fighting the worldwide HIV/AIDS epidemic a
priority of U.S. foreign policy. He has taken bold action against
the crisis through his Emergency Plan for AIDS Relief. Understanding
the unique challenges presented by this epidemic is essential to
designing policies to prevent the spread of the disease and to treat
those who are already infected. A comprehensive and integrated
approach of prevention, treatment, and care is essential to quelling
the epidemic. In poor countries, treatment affordability and the
lack of health care infrastructure are major concerns. Compassionate
pricing policies and aid from developed nations can play an
important role in expanding access to treatment.
To continue the development of better treatments and to work toward
eradication of HIV/AIDS, drug companies need to maintain the highest
possible quality of research. Intellectual property laws are
important to ensuring appropriate incentives for innovation to
create the next generation of therapies and to develop a safe and
effective vaccine.

Modern International Trade
Chapter 8, Modern International Trade, examines the benefits of free
trade and discusses the progress the Administration has made in
opening global markets. Open markets and free trade raise living
standards both at home and abroad. Any move toward economic
isolationism would threaten the competitive gains made by U.S.
exporters while harming U.S. consumers and firms that benefit from
imports.
The President's policy of opening markets around the world is based
on a long history of intellectual support for free trade, starting
with the nineteenth century theory of comparative advantage advanced
by David Ricardo. Ricardo illustrated the ways in which free trade
allows countries to mutually benefit from specializing in producing
products at which they are adept and then exchanging those products.
This rationale remains the same, even with advances in technology
and new types of trade. The principle of comparative advantage
applies to the burgeoning trade in services, in which the performance
of U.S. service workers and firms has been particularly strong. The
United States exports more services than it imports, and this surplus
has been growing in recent years. Moreover, U.S. services exports
tend to involve relatively highly skilled and highly paid
occupations, such as engineering, financial services, or
architectural services.
Richer economic models that take into account the features of the
modern world show that countries as a whole still gain from free
trade. There are, however, differing impacts of trade on different
parts of the economy and the labor force. Policies aimed at
supporting individuals affected by trade are thus vital to ensuring
that its gains are widely shared. To this end, the Administration
has proposed a reform of the overall workforce training system to
help Americans obtain marketable skills needed to compete for jobs
in emerging and innovative fields. The Administration recognizes
that effective workforce training requires the cooperation of the
private sector and community colleges and has worked to nurture
these partnerships through the High Growth Job Training Initiative
at the Department of Labor and through the recently enacted
Community-based Job Training Grants. In addition, the Administration
has proposed the establishment of Personal Reemployment Accounts,
an innovative approach to worker retraining, and has worked to
enhance the long-standing Trade Adjustment Assistance program, which
provides training and income support to workers directly hurt by import competition. As part of the Trade Act of 2002, eligibility was
extended to workers indirectly affected by trade, such as workers
employed by firms that supply goods and services to industries
directly affected by trade competition. Benefits were enhanced to
include a health insurance tax credit and a wage supplement for
older workers who found new jobs that did not pay as well as their
previous jobs. This assistance, which will total $12 billion over
10 years, will ease the adjustment for displaced workers and help
them move into jobs for which their skills are most in demand.
Foreign direct investment is playing an increasingly important role
in world trade, as companies invest across borders to gain skills,
technology, resources, and market access. A good deal of evidence
suggests that increased employment at the foreign subsidiaries of
U.S. firms is associated with a corresponding increase in employment
in the U.S. parent company. Similarly, recent research shows that
one dollar of spending on capital investments abroad by U.S. firms
is associated with an additional three and a half dollars of
spending on capital investment at home. The available evidence thus
suggests that, on the whole, overseas expansion by U.S. firms goes
hand-in-hand with expansion at home. Subsidiaries of foreign firms
operating in the United States make important positive contributions
to the U.S. economy as well. Foreign direct investment into the
United States is associated with the adoption of new technology,
techniques, and skills by locally-owned companies. U.S. subsidiaries
of foreign companies employed 5.4 million U.S. workers in 2002,
nearly 5 percent of total private-sector employment. This is up
from 3.9 million workers in 1992 (4.3 percent of total private
employment at that time).
The Administration has pushed aggressively to open global markets
to trade through multilateral talks under the auspices of the World
Trade Organization (WTO), and through agreements to liberalize
trade between the United States and various partners. The
Administration has worked to ensure that the benefits promised
under the agreements are realized for U.S. consumers, workers,
manufacturers, farmers, and service providers. At the same time,
lower trade barriers benefit people in U.S. trading partner
countries. When U.S. trading partners do not fulfill their
obligations, the Administration has sought their compliance through
a practical, problem-solving approach. When that fails, however,
the Administration has utilized formal dispute-settlement mechanisms.
The integration of the Chinese economy into the global trading
system has been an important development in recent years. The
Administration has worked to ensure that China lives up to the
agreements it has signed, including lowering its barriers to trade,
addressing concerns about intellectual property protection, and
adopting and enforcing the rules of the multilateral trading
regime. Trade between the United States and China has been growing
rapidly. For goods trade through November 2004, China ranked as the
third-largest trading partner of the United States. For most of the
period since China's WTO accession, U.S. exports to China have been
growing at a rate faster than its imports from China, but this
export growth is occurring from a much smaller base.
The Administration's vigorous pursuit of trade liberalization has
paid off in progress on the Doha Development Agenda. The United
States played a leading role in the intensive negotiations that led
to an agreement establishing a framework for the ongoing talks at
the WTO. These talks, which were launched in 2001 in Doha, Qatar,
have focused on measures that will especially benefit developing
nations, including the elimination of agricultural export
subsidies. Trade agreements were also concluded in 2004 with
Australia, Morocco, Bahrain, and with the participants in the
Central American Free Trade Agreement (CAFTA), including Costa
Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the
Dominican  Republic. At the same time, the United States continued
negotiations with the five nations of the Southern African Customs
Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland)
while launching new negotiations with Thailand, Panama, and the
Andean nations Colombia, Ecuador, and Peru. The President has also
announced to Congress his intention to begin free trade agreement
negotiations with the United Arab Emirates and Oman. When combined
with agreements already negotiated by the Administration, partner
countries accounting for almost $50 billion in 2003 trade have
committed to eventually eliminate tariffs on almost all U.S.
exports. Tariffs that averaged as high as 19.6 percent for U.S.
exports will be reduced to zero as a result of these agreements.

Conclusion
The last year has seen the U.S. economy strengthen from recovery
into a solid and sustainable expansion. With the near-term outlook
bright, this provides an opportunity to put renewed focus on
longer-term economic challenges. The President's agenda is focused
on these challenges--on taking the actions needed to bring about a
better economic future shared by all Americans. The President's
policies are designed to foster rising living
standards at home, while encouraging other nations to follow our
lead.