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Question
Are you for or against free trade? Are you for or against NAFTA? What is the economic basis for trade? Explain the underlying facts that support free trade and give an example of a good that you purchased recently that is based on resource differences. What are some examples of goods that the U.S. has comparative advantage in producing? Take a look at the tag of the shirt/dress/pants you are wearing today. Where was it made? Anyone wearing “Made in America” items of clothing today? We sometimes hear people say “Buy American.” Why don’t we? What is the basis of international trade? What are the benefits and the costs? Under what conditions would you advocate for trade restrictions?
Answer
Name of Student
Name of Professor
Economics Paper
21 March 2024.
Free Trade
Free-trade provides opportunities for globalization and economic growth in both developed and developing countries. It is free from government regulation, interference, and taxation, and this makes it an ideal driving force for economic growth and stable global markets. Factors such as global transport, communication, and liberal governments have greatly contributed to the opening up of new opportunities for the expansion of free trade (Mansfield and Milner 165). One of these opportunities has been provided by the North American Free Trade Agreement (NAFTA), a trilateral free trade agreement between America, Mexico, and Canada. Established in 1994, the agreement was a pre-conceived effort to promote the concept of free trade which was still not globally accepted at the time. Contrary to popular belief, free-trade does not slow down economic growth in some of the participating nations. If well executed, it has the potential to boost the level of economic growth for all participants.
There are many reasons why free trade is desirable in the modern world. Firstly, the economic basis for it is primarily comparative advantage, which incorporates other important factors like absolute advantage, specialization, and opportunity cost. Comparative advantage is the ability by a country to produce a certain commodity efficiently in terms of production costs and the possibility of yielding high returns (Miller 78). Within the context of free trade, each country is able to specialize in making products for which it has a comparative advantage. For example, the United States has a comparative advantage in the aircraft, electrical, computing, and pharmaceutical industries.
The best way to highlight the benefits of free trade is by examining the example of the textile industry. It has become very rare to find clothes with a “Made in America” tag because other countries such as China have built a comparative advantage for the industry. Producing clothes in America is expensive mainly in terms of the human capital required. In contrast, low-labor countries like China are able to produce clothes cheaply for export in America. To succeed in the present era of free trade, America should focus on producing goods for which it has a comparative advantage. The only time trade restrictions should be advocated for is when powerful economies seek to destroy those of poor countries by taking advantage of inability by the latter to establish comparative advantages at the international level.
Works Cited
Mansfield, Edward and Milner, Hellen. Votes, Vetoes and the Political Economy of International Trade Agreements. Princeton: Princeton University Press, 2012. Print.
Miller, Grady. The Legal and Economic Basis of International Trade. Westport: Quorum Books, 1996. Print.
