Free trade agreements have been thrust into the limelight in this election and accused of weakening their member countries’ economies – is this true?
Free trade agreements have been thrust into the limelight in this election and accused of weakening their member countries’ economies – is this true?
As a key factor of the economy, and a key policy issue, it is important to understand free trade agreements before we internalize recent much-touted views on them. They have recently played a relevant political role, as prominent opposition to them includes Bernie sanders and an outspoken Donald Trump, and yet President Obama has striven to foment them, while Hillary Clinton once voiced her support (she has taken a much more cautious stance now). As responsible citizens, we must form opinions based on evidence and facts before we are swept away by political rhetoric and polarized. So what are they?
Free trade agreements, such as the North American Trade Agreement and the Trans-Pacific Partnership, are trade deals that seek to foster commerce amongst their member nations by lowering its cost, mainly through eliminating or drastically decreasing tariffs and quotas (fees and limits on imported goods).
In principle, this should lead to greater prosperity and mutual benefit as both sides can satisfy their necessities and exploit their individual resource surplus to tip the balance of trade in their favour.
In a most basic example, if there are two villages, one with a vast amount of iron and little wood, and another with a massive supply of timber and no iron, trade would allow them to draw upon each other’s strengths and build greater projects, using nails from one village and wood from the other. Moreover, free trade deals are intended to increase competition and pressure local producers into modernizing their techniques, lowering costs and losing market share if their customers are unsatisfied, which would theoretically increase the standard of living of its citizens, who may now afford better goods at lower prices.
Free trade agreements have long been suspected of detracting employment
That is, until employment is taken into account: Free trade agreements have long been suspected of detracting employment in developed countries and shifting them to locations with cheap manufacturing, thereby slashing local jobs: in the United States’ case, this would be Mexico. It is well known that manufacturing has shifted to China and Mexico, while the United States’ (and other highly developed countries’) service sector has grown. In a globalized market, such outsourcing is a means of lowering costs that allows large multinational companies to grow, and some believe, to strangle any local competition or small businesses. It would seem like this concentrates the benefits into the large corporations, rather than the citizens themselves, who in one case are now jobless, and in the other, are being paid a minimum wage for menial jobs in questionable conditions.
But remember the wood and the nails: according to the Office of the US trade representative, nearly 70% of vegetables in the Unites States are imported from Mexico, while the latter imported $236 billion dollars’ worth of machinery, automobiles and other goods from the United States in 2015.
The two countries are crucial trading partners, and even if jobs have been lost to foreign goods, jobs have been created by foreign demand. Additionally, supply lines are often integrated across the border, such that goods in the textile and automobile industry draw upon the resources of both countries to bolster their competitiveness in a global environment.
Protectionism, or the use of policies to isolate domestic markets to protect local employment, can lead to higher prices to all involved: my friends from Brazil regularly complain about the exorbitant cost of computers and clothes in Brazil, which, due to a 60% import tariff, are higher than most other countries (Daniel Hamilton).
Free trade agreements have been dangerously tossed around and, in my opinion, used as scapegoats for financial crises. While it is paramount that they must provide reciprocal benefits to the parties involved, I think that they can strengthen economic regions, like North America, by bolstering them against large foreign economic powers, like China.
I believe that, should the Unites States retract from all of its free trade agreements, an economic catastrophe would be triggered where its productivity would decrease, consumer prices would rise and large American corporations would risk bankruptcy. Isaac Asimov replaced countries with “regions” in his futuristic staple I Robot, a concept that has been echoed by many other science fiction writers, for a reason: because as economies develop, cooperation will likely provide more benefits than isolation. The equitable distribution of such benefits is the responsibility of our elected officials.
I encourage everyone to research the impact of free trade agreements in their community, country and world, and share their opinions
Copyright: chrisdorney