Free trade agreements are more harmful than helpful

I will argue that free trade has multiple advantages over protectionism. C1: Mutually Beneficial All countries will have a comparative advantage in producing some goods – when it has the lowest opportunity cost, according to David Ricardo’s economic theory [1]. Although nations such as the United States may have an absolute advantage in both the production of corn and aircraft compared to Ethiopia, the United States – which has a rich capital stock – will have a comparative advantage in aircraft. If the USA tried to be self-sufficient, it would incur high opportunity costs (foregoing the production of plenty of aircraft). The USA would be better off trading aircraft (its comparative advantage) for corn (Ethiopia’s comparative advantage). The USA will be better off, and so will Ethiopia, both nations will experience gains of trade from the specialization of labor. Free trade maximizes efficiency, and therefore prosperity, by allowing the private sector to productively allocate resources to where they generate the highest returns. C2: A Capital Surplus or Trade Surplus A nation may import more than they export (depending on the value of receipts). However, a trade deficit is entirely offset by a capital surplus. This is because although a nation may have a negative current account (trade deficit), it will be offset by a positive financial account (capital surplus). Either way, a nation benefits economically. To put it another way, the Chinese may have a trade surplus with the United States, but this surplus of dollars will have to be put back entirely in the U. S. economy, either through the purchase of U. S. goods or the purchase of U. S. assets (public or private). Those dollars are useless in China, which uses the yuan. C3: Economic Benefits Free trade allows nations and innumerable firms to compete. This competition spurs higher quality and cost-cutting to attract sales. Trade benefits the economy in many ways, including: Lower costs of production Technological innovation Economic development First, trade helps to expand production. Free trade will allow producers to minimize the cost of inputs, leading to lower costs of production (and thus lower prices). Second, trade spurs technological innovation. Firms must invest in R&D and develop cutting-edge products to be competitive. By opening the borders to trade, firms adapt or are dislocated. Trade allows national economies to grow and evolve technologically. Third, trade is crucial for economic growth. The foundation for any healthy economy includes institutions such as rule of law, property rights, freedom of contract, and open markets [2]. Free trade is a critical ingredient in economic freedom, and higher economic freedom is strongly linked to higher economic growth. C4: Benefits Consumers There are multiple advantages to free trade, and I have detailed several of them. An important fact to consider is that trade benefits consumers. Free trade spurs competition which leads to quality improvements and cost-cutting. This benefits consumers, which is why trade has increased the average American’s paycheck by $2,000 a year [3]. When consumers have more affordable goods, they have more disposable income. This allows aggregate demand to increase. Tariffs impose high prices on consumers, which weakens aggregate demand and the economy. C4: Job Creation Comparative advantage will produce dislocation, but this churning will make the economy more efficient and ultimately more prosperous (through lower opportunity costs). This happened when the personal computer replaced the typewriter, when petroleum replaced kerosene, and when the automobile replaced horse-drawn carriages. Trade achieves the same effect, through consumer choice and the free flow of resources. A dynamic, innovative economy requires free trade. Free trade produces jobs in several ways: International investment Lowering prices Export-supported jobs First, trade leads to international investment. Nations where we have a trade deficit – say China – use their dollars to invest in the United States, either through FDI, investing in financial markets, or buying exports. Second, imports help keep prices down for American consumers. The $2,000 that Americans have in their paycheck helps spur consumer demand, savings and investment here in the United States. It is effectively a “tax cut” that stimulates our economy and job creation. Lower prices in the form of inputs can augment national economies as well. One source indicates that 80% “of global trade takes place across global supply chains and within multinational corporations”. Lower tariffs will make American firms more competitive and efficient at producing goods and services [8]. Thus, lower tariffs could help local industries grow and expand. Third, exports sustain millions of jobs. In 2012, 14% of U. S. GDP was accounted for by exports. This is the equivalent of over 11 million jobs. These jobs also pay higher. [9] [10] C5: Promotes Peace and Democracy First, trade fosters peace. There are dual reasons for this phenomenon, including: Cultural integration Economic incentives Trade brings on onrush of products across national borders. The Japanese wield iPhones, while they drink Coca Cola and browse on their personal computers with Windows software. Simultaneously, Americans drive Toyotas and Hyundai cars as we embrace South Korean video games. Trade brings people closer together. There are economic incentives with trade that also promote peace. The United States imports significant quantities of footwear, consumer durables, and steel. The Japanese also import vast amounts of fossil fuels and food. Globalization and free trade has brought nations and people closer and increasingly interconnected, which sows the seeds of peace and prosperity. Empirical data also validates this claim; a negative correlation has been established between free trade and conflict [6]. Second, trade promotes democracy. Trade also promotes peace and democracy. As national economies develop, a civil society evolves and the population becomes increasingly politically and economically aware. This link has been shown in Chile, South Korea, the former Soviet Union (glasnost), and increasingly China. Conclusion Economists have broad agreement – free trade is beneficial and a net gain for society. In fact, “87.5% agree that the U. S. should eliminate remaining tariffs and other barriers to trade. ” [5] There is also a logical argument for free trade. By allowing products to flow across national borders, competition spurs higher quality and cost-cutting, while incentivizing innovation and creativity. Consumers benefit from lower prices, economies become more efficient and produce high-quality, productive jobs, while nations bond and yield the fruits of trade through peace and international integration. References [1] . http://tinyurl.com... [2] Issues in American Economic History (2004). Miller & Sexton. Print. [3] C. Fred Bergsten, director of the Institute for International Economics, Foreign Affairs (89) [4] As quoted in Nikolaus Piper, "Trade, Globalization and Integration: Some Lessons from Hamburg's History," paper presented at the Mont Pelerin Society meeting, Hamburg, Germany, April 3-6, 2004. [5] Whaples, Robert (2006). "Do Economists Agree on Anything? Yes! ". The Economists' Voice [6] . http://tinyurl.com... [7] . http://tinyurl.com... [8] . http://tinyurl.com... [9] . http://tinyurl.com... [10] . http://tinyurl.com...