Question

Many opponents of free trade use the following example to illustrate its negative effects: Joe Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6AM. While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG). He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA). After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) filled it with gas from SAUDI ARABIA and continued his search for a good paying AMERICAN JOB. At the end of yet another discouraging and fruitless day he checked email on his computer (MADE IN MALAYSIA) then decided to relax for a while. He put on his sandals (MADE IN BRAZIL) poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered WHY he can’t find a good-paying job in America.

Should America encourage free trade with its trading partners or seek a more protectionist approach? Take a stand on this issue. It is not enough to argue BOTH sides of the issue. Support your opinion with good economic reasoning. Who benefits from your approach and who loses? Why? Include impacts on both American citizens and the citizens of the other countries with whom we (U.S.) trade. If your home country is outside the U.S. indicate the possible impact of your stand (favoring either free trade or trade protectionism) on your country. Some common search topics include employment, tariffs, quotas, and free trade agreements. In short, you think free is good for economy? is it bad? Or little both?

Answer 1

The example stated is an example that clearly indicates the impact that free trade can have on a country. While in the example one can clearly see that a majority of the items an individual’s use are manufactured or imported form other country.

Free trade indicates that countries can import and export to other countries without any restrictions. In the era that we live today no country is self sufficient and international trade takes place in every industry between most countries. Both the approaches have advantages and disadvantages to both the dealing countries. According to the question, in my opinion protectionist approach is better as compared to absolute free trade. Every country produces most of the products except for the ones that need natural endowments (OIL/PETROLEUM). It is better at some product as compared to the other. In real life situation, countries will export these products and import the products that have a higher cost when produced locally.

A protectionist approach can be carried out in several ways. Quotas, import and export tariffs and agreements are a few well known ways. Stating from the example, America can have quotas on import of watches, or cooking equipment or alcohol. This would have an impact on both the countries. Since quotas will reduce the quantity supplied, local manufacturers will get an opportunity to fill up the supply gap. This way, local manufacturers get business and can create jobs and jobs in countries from whom the product is imported will still continue.

Imposing tariffs on imports will increase the cost of the product in the importing local markets. People producing the products locally will be able to either produce the product for cheaper or if the cost of local production is also high, they will be able to compete in the market since the general price of the commodity is high.

Free trade is a mix bag of both good and bad. While its advantages are that it helps develop economic relations, products are available across borders, jobs and income opportunities are and products imported from countries that produce it for cheaper will reduce the price of the product in the local markets of the country that is importing it. The disadvantages are to both the countries as well, local craftsmen will get an opportunity to grow and develop, job creating in the economy, foreign currency reserves will last longer, smaller trade deficits. Disadvantages include cost of product in the local markets will increase, may lead to degradation of economic relations, the exporting country will have less inflow of currency, jobs will reduce in the exporting country.