Is Free Trade Bad For The Economy?


Throughout the 2016 election, candidates Donald Trump and Bernie Sanders have had clearly divided and opposing views. But one topic on which they share their opposition is that of free trade agreements. Many people have demonized free trade agreements like NAFTA and the TPP in the last year. So, what exactly are free trade agreements and what’s so bad about them? Well, first it is important to realize that the world economy, and by extension standards of living, are dependent on international trade. In practice, countries which produce more usually do better economically, and many countries enact trade rules which favor their own production. For example, in the 1920s, European farms were able to sell agricultural goods to the US very cheaply. This undercut American farmers, and so Congress passed the Smoot-Hawley Tariff, which raised taxes on imports. This artificially made foreign goods very expensive compared to domestic goods, now favoring the American farmer. Laws and rules like these are called “protectionist”.

Free trade agreements are, at their most basic, a series of compromises between countries. They remove protectionist restrictions and taxes, but also work to keep participating economies from falling apart without them. Most countries are members of the World Trade Organization, which regulates international trade agreements, and maintains the global economy. But one of the problems with Free Trade Agreements is that they can also hurt consumers. For example, in 2011, tobacco giant Philip Morris sued the country of Australia for implementing anti-smoking regulations. The company argued that the regulations would violate a portion of a 1993 trade agreement between Hong Kong and Australia because plain packaging would diminish their trademark. And even though the lawsuit failed to stop restrictions, it is an example of free trade agreement overreach. A much more common complaint, especially in the United States, is that free trade agreements lead to outsourcing, and a loss of American jobs. When the North American Free Trade Agreement was established between the US, Canada, and Mexico in 1994, it eliminated most taxes on imports and exports between those countries.

This made it cheaper to import food and goods from Mexico than it was to grow or make them in the United States. This led to considerably cheaper goods, and a net benefit for consumers. However, the trade agreement also led to outsourcing those same farming and manufacturing jobs to Mexico. It’s been estimated that one million jobs have been lost to NAFTA over the past two decades. In short, a free trade agreement makes it easier for foreign countries to compete with local production, making everything less expensive according to free market principles. But for those workers who actually have to compete with cheaper foreign labor or resources, they’re often forced to find new work. There are also a huge number of other considerations besides actual trade that go into free trade agreements, like environmental and copyright concerns. In the end, free trade agreements can make goods cheaper and more available.

However, this benefit can come at the expense of thousands, if not millions of jobs. The TPP is one such free trade agreement that has received major criticism. But what exactly is the big deal? Check out our video to learn more. Thanks for watching! Make sure to like and subscribe for more TestTube News every day..