Question

While economic analysis shows that free trade increases consumption for all trading partners, criticism against free trade has been expressed by several policy makers and voters. Trade proponents emphasize the positive net benefits of trade, increasing the economic pie for each trading partner and benefiting each country as a whole. Critics point to the distributional effects of trade in primarily importing countries, benefiting consumers with lower prices and harming some producers. In the U.S. some manufacturing workers have been made worse off as their labor is demanded less.

What is the best policy for the U.S. to follow to maximize the well-being of all U.S. workers? Explain your answer.

A. Pull out of free trade agreements such as NAFTA that potentially harm U.S. manufacturing workers, in the hope that jobs in the manufacturing industries will return to the U.S.

B. Impose tariffs on imported manufactured goods to protect domestic manufacturing jobs that will reemploy workers.

C. Keep tariffs on imported goods low but provide special unemployment insurance for workers who lose their jobs due to free trade agreements in order to guarantee displaced workers retain their same living standard while they find a new job.

D. Keep tariffs on imported goods but establish and subsidize educational, training, and placement programs for workers who lose their jobs due to free trade agreements.

Answer 1

Case Specifics: -

The United States of America has been the pioneer in terms of global trade and commerce and has been advocating reducing tariffs and taxes as far as possible. It has always wanted a world economy wherein free trade takes place and the rise of consumerism means competitiveness and innovation in products which are good for both the consumers as well as the producers in maximizing their interests.

Economists have far argued on whether free trade should take place or tariffs must remain for the good of the country. However, we have realized with evidence, that those countries which prohibit trade or have tariffs which are higher often face, retrospective taxation and as a result their exports decline in value and the cost of imports remains extremely high.

We have examples of countries such as India and China which have previously been reluctant in following free trade agreements and have protected their economies for long post which they realized that this strategy would only mean that they would be subject to retrospective taxes and their exports would not be as high as the developed world.

Therefore, in common opinion, raising taxes or tariffs or withdrawing from the existing trade agreements will only hurt the United States in terms of its exports and imports and the country would face more problems of unemployment if it chose to do so as global demand for the products which we manufacture would go down significantly.

Thus, option A and B both are incorrect as a solution to going over the constant problem of unemployment or low growth rate in the country.

Now, when we look at giving subsidies or grants to those that are unemployed, It is a common belief that these sorts of grants do not ease the employment situation in the country but are rather a short term strategy which grants people some relief from the existing condition of unemployment whereby even though this strategy can be used as a counter measure to protect people, it is an added problem or expense for the government which does not yield any proper results.

The fourth strategy is the best in this case. It aims at increasing and updating the current skills of people on one hand and helps them with employment on the other. Going through this strategy would ensure that the economy revives back to its original state and any job which is lost is that which requires primitive skill. Upgrading the skill of the existing job holders would ensure that while they earn higher than the competition, jobs that are lost are only those that required lower skill sets and go to countries such as India and China with abundance of manpower which is ready to work at lower costs. If we go on upgrading our skills, technical jobs for our country would rise.

Thus, the correct strategy to follow is option D as it does not restrict trade but rather aims at converting the country into a market wherein the demand for skilled labour force rises and expertise is well paid instead of providing direct benefits to people which would last only for a short period of time.