Question

write 400–600 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas. The importance of trade continues to be a debated topic because the gains are not always quantifiable by those involved. Some would argue that due to a significant difference in wages and regulations, free trade is not always fair trade and that free trade agreements are used by companies to simply chase lower wages and fewer regulations. In the United States, this has been an ongoing debate in regard to both the North American Free Trade Agreement (NAFTA) and the normalized trade relationship with China. Take some time to read the following articles before beginning your post: Free Trade vs. Fair Trade U.S. Trade Strategy: Free Versus Fair Based on what you have read, please address the following questions: Which do you feel is a better approach, free or fair trade, and why? Given the concept of comparative advantage, should we even be discussing free versus fair trade?

Answer 1

Drezner (2006) pointed out in the article, ‘U.S. Trade Dilemma: Free or Fair?’ that changes in the domestic attitude and the nature of the world politics has created the trade dilemma. According to the Program on International Policy Attitudes (PIPA) and German Marshall Fund (GMFUS) survey, free trade has become detrimental for the domestic economy in the US as free trade has killed many jobs due to increasing competition. Moreover, it has been observed that in recent times, the economic phenomena like global financial crisis, global recession, and dollar crisis have created negative effect on the US economy. The arguments against the free trade in the US economy are described below:

During economic uncertainty, policy of free trade creates public resentment due to unequal exchange or unequal competition between countries. As free trade allows free flow of resources such as labour and technology, it creates wage differentials. As skilled workers move to the countries providing higher wage, it costs the domestic countries in terms of shortage of human capital. Due to increasing competition, demand and wages of high skilled workers increases and that of low skilled workers decreases. Therefore, joblessness increases in the economy. Moreover, import competing sectors are affected in terms of profit and employment. High rate of unemployment is a major concern for the US government over the past few years. In order to reduce trade deficit, Trump government has called for some changes in the provision of free trade between United States and Canada and Mexico.

It is argued that free trade has benefits such as economic growth; economic leadership to the world and it promotes wider set of policies. While free trade has benefits but political risks due to world economic and political uncertainty and disputes, fair trade has policy risks. While rising import tariff will help to promote exports to the rest of the world, on the other hand, this policy will encourage other countries to increase trade barriers against US exports. Global trade war or restricted trade may hamper US economy.

In the presence of comparative advantage, free trade is more beneficial for a country. A country can easily produce the products having less opportunity cost of production and can export those. In the presence of strong fiscal and monetary policy, a country can effectively use its resources. Moreover, free trade can help to increase its production capacity that can remove the unemployment problems in the domestic economy. In order to reduce the political risks, the government and private sectors need to work in planned manner such that backward and forward linkages associated with a export good can be established. Therefore, achieving a targeted economic growth and employment could be easier through free trade.