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In: Economics

Some of the United States of America’s regional trade agreements (RTAs) are changing in 2019. Explain...

Some of the United States of America’s regional trade agreements (RTAs) are changing in 2019. Explain a RTA that the US currently has in place or has recently changed. Also, explain what level of RTA it is. Use economic terms from the first three lectures to explain whether you think the RTA may be helpful or hurtful to the US economy and the world economy.

Solutions

Expert Solution

Regional trade agreements are between countries in a specific region. The most powerful are those that encompass a few countries covering a wide and contiguous geographic area. These include the North Atlantic Free Trade Agreement and the European Union. That's usually because the countries involved share similar history, culture, and economic goals. Regional trade agreements are hard to create and enforce when the countries are very diverse.

  • FTAA or Free Trade Area of the Americas: Since the Reagan Administration, the United States has been trying to get a free trade agreement with all the countries of North, Central, and South America, as well as the Caribbean. At first, 34 countries agreed to negotiate an agreement that would expand NAFTA's success throughout the hemisphere. But by 2005, the effort had failed. Many South American countries, like Brazil, Venezuela, and Ecuador were afraid that eliminating tariffs would allow U.S.-subsidized agribusiness to put their local farmers out of work and force their people to work for U.S. corporations. Other countries went on to enter into bilateral agreements with the United States, including Chile, Colombia, Panama, Peru, and Uruguay. Since the FTAA was abandoned in 2004, a much smaller trade agreement resulted between the United States and six other countries.

Trade pacts reinforce U.S. political and strategic interests beyond the gains in commercial ties. Recall that the first U.S. free trade pact was in 1985 with Israel, and it is a cornerstone of the U.S.-Israel relationship. The Trans-Pacific Partnership will similarly cement American ties with the Asia-Pacific region. It reassures our allies that the United States is a reliable partner that remains engaged in a region facing North Korean adventurism.

To say that trade agreements are good for America doesn’t mean that they benefit all Americans. Some firms can take advantage of the new opportunities and others suffer from increased competition. Yes, trade deals can displace some workers from their current jobs, but they also create many new jobs in areas where America has a competitive advantage such as business services and high-tech industries. Compared to overall U.S. job creation and dislocation each month, affected largely by technological advances and changes in consumer demand, the impact due to trade agreements is exceedingly small, but positive because, on balance, trade pacts create better and higher paying jobs than the ones displaced. Workers in manufacturing firms that export generally earn wages 12 to 18 percent higher than their counterparts in firms that only serve the domestic market.


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