Should the United States push towards free trade?
Protectionism is the government's actions and policies that restrain international trade. In most cases, it is brought about by politicians. Protectionism seeks to reduce the inflow of imports and grow exports (Hahn & Carl 2010). On the other hand, free trade involves no artificial barriers or tariffs put in place by the government to affect the inflow and outflow of imports and exports. It involves no trade restrictions towards the country's trading partners. Free trade, also referred as trade liberalization, has grown in the past years. This goes on to show that there is a need for a market driven approach to economic and social policies. Although in free trade the government does not actively interfere, there may exist a few Free Trade Agreements (FTAs) between trading countries that must be observed. The FTAs are usually to define the obvious and expected rules of engagement and do not constitute as government control.
Free trade is easily defined as a policy of unrestricted foreign trade where restrictive tariffs, quotas, subsidies on imports or exports, or other trade restrictions are not present. Lack of these restrictions creates a free market. Countries practicing free trade with each other usually suspend previous restrictions mainly affecting the social and economic policy, to make room for better trading terms beneficial to those involved. Proponents of free trade argue that exposing a country's economy to international competition leads to greater efficiency. A country has so much to gain from free trade. The United States should push towards free trade because it prevents businesses from becoming monopolies, and it also leads to economic growth. Additionally, free trade leads to economic growth, helps open up other markets, and creates production efficiencies. Free trade also offers consumers with a wide selection of quality goods and services and promotes growth in production and consumption. On the other hand, protectionism kills businesses in the long run and as such, it is not advisable for the United States to push towards it.
Arguments supporting why the United States should push towards free trade
This section will look into detail the reasons why free trade is a plus for the United States, and why it should be adopted, as compared to protectionism.
Free trade prevents businesses from becoming Monopolies
Free trade does not impose restrictions on both domestic and imported goods and services. As a result, this creates competition of goods and services from abroad. This competition is healthy since it allows for increased efficiency, and prevents domestic firms from charging too high for their goods and services (Droždz & Algirdas 2011). In a protectionism setup, this is not the cases since the tariffs set up protect domestic firms from goods and services from abroad. As a result, competition dwindles and the firms are setting up their own prices without even improving the quality of their goods and services. This creates monopolies which end up hurting a consumer in terms of prices charged.
Free trade leads to Economic Growth
Free trade creates an open environment for trade. It attracts investors from countries that are its trading partners. The investments these foreign companies bring in to the United State are a huge catalyst for economic growth. For example, across Europe, a research conducted in 2010 showed that countries with open economies (proponents of free trade) usually grow almost three times faster compared to those with a protectionism model of trade. However, trade alone cannot help grow economic activity. There are other amenities that must also be improved top facilitate the economic growth. They include proper healthcare, education and good infrastructures.
Fig 1: (Source: US Chamber of Commerce, International Affairs).
The table above shows the growth of the foreign revenue from some countries the U.S. enjoys FTAs with. Since FTAs were agreed between the US and these countries, there has been an increase in the consumption of the United States exports to these countries. The table compares the growth in exports after five years since the United States agreed to FTAs with the countries. This shows that eliminating tariffs and other trade barriers has enabled the United States to expand its trade.
Free trade helps access of other open markets
Free trade helps member states access other open markets of other members. It follows that if a member state is allowed to trade freely, it is only courteous enough to reciprocate the action. The advantages of this access can be numerous ranging from access to markets to export goods to, thus, earning foreign income, access to new innovative and creative ideas from the member states, an improvement in the living standards thanks to the foreign income earned, and even promotion of peace since trading partners are allies and would like to maintain the peace between their two countries. All these benefits cannot be realized through protectionism trade, ad it is evident of the advantages the United States would lose.
Free trade creates Production Efficiencies
As discussed in the points above, free trade creates healthy competition that hinders creation of monopolies. This healthy competition exposes domestic providers of goods and services to improve their practices. They are forced to become more efficient and competitive to stay in business, since they cannot play around with pricing in bigger ways as in a monopoly. As the efficiency improves, so does productivity since an efficient use of resources usually translates to higher productivity. This increases the domestic output of products and services. The same competition also helps firms adopt innovative production methods, embrace new technologies, and better sales and marketing approaches. Also, the efficiencies are based upon the types of resources a country has, compared to its trading partners. In line with the economic concept of scarcity, a country can only produce so much due to the availability and size of its resources, and an efficient market system is needed to determine the quantities of what is to be produced in line with demand.
Consumers are exposed to a wide selection of goods at competitive prices as a result of free trade
With free trade, consumers are exposed to a variety of quality goods from foreign countries, just as their country exports its goods to those countries. This, coupled with the healthy competition that serves to control the prices to manageable levels, gives consumers a wider range of products to choose from, at affordable prices. This goes in hand with the economic concept of costs and benefits, which implies that a consumer always makes the choice with the most benefit to them, and at the least cost. A good example to explain this scenario is the recent introduction of tariffs on imported steel in the United States (Irwin 2017). The construction and manufacturing industries in the United States rely heavily on steel. The tariffs introduced will have to be bore by consumers and thus, prices of steel commodities will definitely go up. This case shows how unfavorable tariffs for imported goods are.
Free trade promotes growth in Production and Consumption
Free trade promotes large scale production. If some goods were only produced for the domestic market, it would be difficult to achieve the benefits of economies of scale due to their low demand. Free trade promotes production of such goods in large scale since it offers a wider international market. As such, countries producing some selected goods at a large scale enjoy the full benefits of economies of scale, and hence, the production cost per unit is lowered (Droždz & Algirdas 2011). Not only does this benefit the consumer, it also promotes trading activities between countries.
Again, in promotion of production and consumption, the comparative advantage economic theory applies very well. It argues that the benefits of international trade outweigh the disadvantages. In the comparative advantage concept, a country will produce more products than it can consume if it has the advantage of doing so.
Counter arguments to why the United States should push towards free trade
Despite all the benefits discussed in the section above, every decision has both a positive and negative side. This section will look at some of the disadvantages of free trade to the United States.
Market entry by new players destabilizes the domestic market
When foreign traders enter the domestic market, they usually do so in a very aggressive manner that disrupts the environment the domestic market enjoyed. The disruption may be in form of lower prices, superior quality goods, or other non-price strategies that work towards disrupting the domestic trader's market share. For the traders to survive, they are faced with the decision of whether to lower their prices to counteract the disruption, or employ other strategies to maintain their market share. If they do not react fast enough, they may end up losing their market share to the foreign firms and never recover.
Specialization leads to high inflexibilities when changes occur in the markets
Free trade brings out specialization whereby countries and markets specialize on the types of goods and services they offer. Specialization entails identifying a narrow range of activities to do, perfecting it, and doing it on a large scale. In free trade, competition is usually high and volatile. It follows, therefore, that the market is prone to change and the traders have to adapt to meet the new demands. Specialization hinders prompt adaptation to such drastic changes. The fact that free trade can have over 100 countries involved, which have their different trading systems and needs, complicates it further (Unger 2010).
High competition in a free trade environment may hurt domestic traders and sometimes drive them out of business
Free trade brings about very high competition in the market. Although this may be viewed as a good thing by the consumers, it may lead to a negative effect on some local firms. If a firm is at a competitive disadvantage, it may be forced to do some actions such as restructuring the firm. Corporate restructuring usually leads to loss of jobs, especially professionals: but also, the restructuring creates other kinds of jobs. This is a necessary step for the firm to enable it stay afloat. It may end up opening new trade avenues the business had not thought of before competition threatening to put the firm out of business.
Rebuttal for the above counter-arguments
Rebuttal argument for the counter-argument on free market entry by foreign firms
Aggressive entry into the domestic market is one of the cons of free trading. However, this only affects businesses that are not well established and for only a short period of time. Once market entry by foreign traders occurs, the best and surest way of staying in business is to plan and strategize how to counteract the effect they bring (Das 2010). From a business point of view, this is a positive effect for the business in the long run since it will lead to improved business practices. Consumers also benefit from this since it means they get superior goods and services. Therefore, this argument is not entirely valid to be used in arguing against free trade. In essence, it shows that despite the short term panic and disabilities that free trade may cause, they will go away and lead to a better trade for both consumers and producers.
Rebuttal for the counter-argument that specialization brought about by free trade leads to inflexibilities
Specialization of production and provision of services leads to a number of things apart from inflexibilities when changes occur. One of the benefits is access to better goods and services to the consumers. Another benefit to the producers is that with specialization, they are able to perfect production of certain goods that other countries have not perfected. Another advantage of this is reduction in cost of production per unit. For example, countries with access to agricultural land at a low cost are able to specialize in agricultural production and sell their produce at very competitive rates. On the other hand, a country specialized in exporting low cost manufactured goods due to their cheap access to high technology will give the country a competitive edge in the international market. As such, inflexibilities are a minor concern when specialization is concerned, since the benefits way outweigh the disadvantages.
Rebuttal for the counter-argument that high competition hurts domestic traders and may move them out of business
High competition always brings about winners and losers in the market. To survive in a highly competitive market, a business has to employ astute strategies that are both economical to the business, and help the business stay ahead of competitors (Regine 2012). Failure to that, the firms usually go out of business. However, competition also opens up new possibilities that can be beneficial to the business. If there was no stiff competition, there would be no need of improved services since the consumers will have to contend with what is available. To the business, lack of improvement in the way they handle their trade could mean loss of more business and revenue. This is so because if a firm is not willing to invest on how to cut its cost and improve the revenues, they are losing out. High competition forces firms to be always on the lookout on ways they can improve their business. Therefore, high competition only affects the businesses that are not willing to adopt to change and grow, and hence its cant be used to rebut the advantages of free trade.
The arguments this paper has presented show that free trade is the way to go for the United States. The benefits that the country will stand to benefit are numerous and they affect both producers and consumers. On the other hand, protectionism does no good to any economy: its benefits are short lived but its impacts will be felt for a longer time to come. On the other hand, a free market will thrive even though during the initial stage, there may be hitches as the domestic market adapts. However, its benefits far outweigh all these hitches. As the paper has shown, introduction of tariffs and other restrictions against imports hurts the economy and the consumer as well, since the additional tariffs imposed are usually charged to the final consumer for a firm to cover its expenses.
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