The Impact of Free Trade on the U.S. and the World
During the period leading to the Second World War, many countries imposed trade barriers on imports in an aim of protecting their domestic industries. This decreased the demand of goods, and it led to a reduction in international trade. Countries suffered economically because of this, and they decided that having such barriers was not the only alternative in solving the problem. They decided to form free trade agreements, which would ensure minimal barriers to trade. Countries exercising free trade do not have, or have reduced quotas and tariffs. This encourages international trade. Countries can import to other countries without worrying about increased charges and costs. Free trade provides an equal opportunity for all countries to trade. In the US, the North American Free Trade Agreement (NAFTA) ensures free trade between Mexico, Canada, and the US. Other free trade zones include the European Union, the Association of Southeast Asian Nations, and the South American Common Market of the South (Mercosur). Free trade has both negative and positive effects, which affect the country’s economic status.
Because free trade encourages international trade, it becomes easier for countries to locate a market for their goods. Countries no longer have to depend on the domestic market to purchase its goods, but it also gets revenues from other international markets. For instance, corn farmers in the US have benefited because they are able to sell their corn to Mexico and other regions. When the local demand is low, the industries can always look up to the foreign markets, where there is greater demand. Data from the Heritage Foundation reveals that exports from the US to other countries were at an equivalent of $1.2 trillion. In addition, there was an increase in the number of jobs in the manufacturing industries directly related to the exports. There was also an increase in agricultural exports and the number of jobs in this area (Markheim 6). This leads to job creation and economic development. Industries are able to hire more people to meet the growing international demand, and this leads to an increase in the employment levels. Many consumers encourage the idea of free trade because it gives them more choice and variety. They can choose from a variety of brands and different styles. Cheap imports are beneficial because they enable families to save more income.
Free trade enhances competition between industries. It encourages and compels the local brands to be more innovative and creative in their production and delivery so that they can attract many customers. They have to produce high quality goods, which have a greater competitive advantage over the imports (Miller 10). Free trade has enhanced the economic status of poorer nations because they are able to export their produce to different international markets. This has increased job opportunities in these countries, thereby increasing the living conditions of the workers. Free trade has improved relations between countries. When different countries trade, they improve their working relationships, as they form trade agreements. Many countries are careful to protect themselves and their domestic industries when forming free trade agreements. They establish rules that will protect the investors and the workers. In many cases, these rules have ended up changing the existing legislature in the country, as the country seeks to comply with international standards. Countries have improved their practices, as they seek the collaboration of other countries in the region.
Free trade encourages imports into the country. Goods from other countries compete with goods produced in the country, and this has an effect on price. If the imported goods are cheaper compared to the domestic goods, then the consumers will prefer buying the cheaper goods, and this hurts the domestic industries. If such a trend continues, the local industries will struggle to remain profitable, and they will suffer losses, leading to unemployment due to massive layoffs, and the closure of the companies. Many people oppose free trade because it leads to loss of jobs when companies choose to relocate to other countries, where they can reduce their operation costs substantially. The US is often affected by this because it offers high wages to its employees, and it has to contend with severe environmental laws. Many countries have lower living standards, and they offer low wages to their employees compared to the US. Some companies have chosen to shut down their operations in the US, and they have relocated to other countries where they are assured of cheap unskilled labor. This enables them to cut costs and increase their productivity and profitability.
In the US, many manufacturing companies have closed and relocated to Mexico, which guarantees them cheap labor, and ensures productivity. The companies are US- based, move to Mexico and manufacture products, then sell the same products in the US at higher prices (Scott 6-9). This creates an unfair working advantage for smaller companies, which cannot be able to relocate their business. It is also unfair for the number of people who lose their jobs once the relocation takes place. The US cannot reject the imported goods because it has already signed an agreement with Mexico. Another negative effect of free trade is that it contributes to decreased wages, especially among the unskilled labor force. Unskilled workers have to accept the terms and conditions laid out by the companies. Some companies agree not to relocate on the condition that they can lower the wages for the unskilled workers.
Companies can choose to locate their production physically, import parts from foreign countries, or outsource jobs. All of these options are an attractive option to the companies looking to lower costs, but they are not attractive to the unskilled worker in search of a job and in the hope of earning a high income. This has also lessened the power of the unions who want to protect their members. The unions feel powerless in the face of these threats as most of them work for the benefit of their members. Companies, which feel that the unions are creating a problem, choose to close the domestic plants. This is especially the case in the manufacturing sector (Scott 21-30). The problem with this is that the living standards in America are higher than those of the other countries are. Workers in America cannot enjoy the same benefits that workers in other countries have because they will have less dispensable income (MacDonald 118-180).
I think that free trade is beneficial for a country’s economy, mostly because of the market provided for the country’s exports. It enhances international trade and international relations, enabling countries to work better. In addition, it encourages the production of high quality goods, as industries seek to gain a greater competitive advantage, which enables customers to seek their products. However, I believe that countries should seek measures that will protect the domestic industries before signing any agreements. These measures will ensure that domestic industries do not collapse because of loss of business. They will ensure that companies do not see relocation or outsourcing as the only alternative they have of reducing operational costs. This will require the collaboration of people in different sectors. Unions have to work well with different industries when bargaining for their members salaries. They should not push the companies to implement unrealistic demands, which will only increase the operational costs. Environmental agents should ensure that they form realistic environmental goals that will ensure sustainable development.
Works Cited:
MacDonald, L. Ian. Free Trade: Risks and Rewards. Canada: McGill-Queen’s Press – MQUP, 2000. Print
Markheim, Daniella. “Why Free Trade Works for America.” The Heritage Foundation. 2007. Web. 14 Nov. 2012
Miller, S. Arnold. Free Trade: Current Issues and Prospects. New York: Nova Publishers, 2004. Print
Scott, E. Robert. “The High Price of ‘Free’ Trade: NAFTA’s Failure has Cost the United States Jobs across the Nation.” Economic Policy Institute. 2003. Web. 14 Nov. 2012
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