A form of economic policy that allows imports and exports among member countries with lower or no tariffs imposed. With free access to the market and market information as well as elimination of trade barriers, supporters say that this is a win-win situation for both traders and consumers. However, not all agree, including some economists, say that free trade allows for foreign competition which can result to Americans losing their jobs, among other things.
In the United States, the country shares a free trade agreement between Canada and Mexico, a treaty known as North American Free Trade Agreement (NAFTA), with both benefits and setbacks divided groups argue about. To have a clearer picture about this contentious issue, here are some key points raised by two opposing groups.
List of Pros of Free Trade
1. Trading countries can benefit from competitive advantage.
Proponents of free trade claim that a country which has enough resources to produce a certain product has the competitive advantage to specialize in this product and be the one to supply to other countries at a lower cost. In return, the other country which can offer a product or service as specialization can also take advantage of the theory and trade with each other. This benefits two trading nations.
2. Consumers will have options and can benefit from lower prices.
Supporters also maintain that with imported products coming from exporting countries with lesser or reduced tariffs, consumers have to opportunity to choose from a myriad of products and services unlike if there is a monopoly in the market. Moreover, with no or limited barriers like high tariffs, products are offered at reduced prices which consumers can take advantage of.
3. It creates employment opportunities.
A clear advantage of free trade advocates point out is the need for more workers by the exporting country. With its market expanding globally, the demand for goods and services increase. Because of this, more labor force is necessary to ensure delivery and consequently, more jobs are available for the people.
4. It allows for foreign exchange gain.
When a country exports its products and services to another, the buyer pays with its own currency. The hard currencies paid by buying nations can then be used by the exporter to pay for products and services they will get from other countries at lower prices.
5. It results to lower oil prices.
As for the U.S., with NAFTA, oil can now be imported from Canada and Mexico at lower tariffs, which in turn, results to cheaper oil. Also, the United States does not have to rely to other countries like the Middle East for oil. This treaty with Mexico and Canada, along with the country’s own oil shale production, makes it beneficial to the U.S.
6. It is a key to economic growth.
Supporters say that the economies of trading countries will have a richer economy with the type of trade agreement they share. By being able to specialize in products they have plenty of materials of, they can increase productivity. There will be productive competition and they will be able to import products at lower prices. All these, according to proponents, are good for the economies of these countries.
List of Cons of Free Trade
1. Workers live in desolate places to work and paid low wages.
Opponents of free trade argue that free trade has led workers from poorer countries to work long hours and forced to live in shanties without electricity even, just so they can work and send money back to their families.
2. It directly affects local producers and small businesses.
Critics contend that free trade is not beneficial to local businesses when it comes to profits. With reduced tariffs imposed on imported goods, foreign suppliers can easily lower their costs. When this happens, local producers have to compete with the prices, which is often hard to do. In the end, consumers will prefer imported goods and products over locally produced commodities.
3. It takes away jobs from Americans.
Some groups against free trade say that it has robbed the average Americans of job opportunities because some manufacturers and employers are encouraged to employ foreign workers for cheaper labor and relocate their factories and plants in other countries. And with the threat of losing their jobs, some workers are forced not to join labor unions and to accept lower wages.
4. It has an impact on culture.
As for countries who buy imported goods, critics talk about the possibility of losing its culture or at least be colonized due to the influx goods from exporting countries. For them, this has an effect not only in the culture of the importing country but also in politics.
5. It can harm the environment and add to pollution.
Some environmentalists express their views on the adverse effects of globalization, including free trade. They emphasize that this will lead some countries to disregard the environment when it comes to producing products and getting rid of waste materials just so they can compete in the industry. With more competition, others might cut their costs like proper dumping of wastes and their process of manufacturing.
6. It has an impact on employees.
Opponents of free trade say that with the increasing competition this treaty offers, some businesses might close down or decide to do business elsewhere. When this happens, workers will be displaced. Regardless of the reduced prices, this will still have an effect on these workers because they will be unemployed or paid with lower wages.
The debate on the relevance of free trade remains to be a divisive issue between opposing views. Recognizing the advantages and disadvantage it has in the U.S, especially when it comes to the economy is the first step. Skeptics are saying it brings about economic inequality and fear it will just be beneficial to mostly to the better off but believers are pointing out new import and export opportunities. With the ongoing debate about the free trade pact, that is the Trans-Pacific Partnership, Americans should participate and get their voices heard.
Brandon Miller has a B.A. from the University of Texas at Austin. He is a seasoned writer who has written over one hundred articles, which have been read by over 500,000 people. If you have any comments or concerns about this blog post, then please contact the Green Garage team here.