Are you for or against free trace? Are you for or against NAFTA? What is the eco
ID: 1215086 • Letter: A
Question
Are you for or against free trace? Are you for or against NAFTA? What is the economic basis for trade? Explain the underlying facts that support free trade and give an example a a good that you purchased recently that is based on resource differences. What are some examples of goods that the United States has comparative advantage n producing'' Take a look at the tag of the shirt/dress-pants that you are wearing today. Where was it made? Anyone wearing Made In U S A items of clothing today? We sometimes hear say Buy American Why don't we? What is tri basis of internet oral trace? What a-e the benefits and the costs? Under what continues would you advocate for trade restrictions?Explanation / Answer
The analysis of free trade has a lot to do with who gains and who looses from trade. If the government is more concerned about consumers than trade restrictions are worst and if they are willing to benefit the domestic producers at the cost of consumers than trade restrictions are welcomed.
A country tends to import a product from a foreign country when the domestic supply falls short of the domestic demand. Usually, the pre-trade price in the importing country is higher and when it imports, domestic price level falls. In contrast, the price level in the exporting country rises since it now caters domestic as well as foreign demand.
Consider the case for a free trade of furniture. A country that imports furniture observes a dramatic fall in the domestic price level. With this, the size of consumer plus is amplified and they are better-off. Producers, in contrast, are worse-off as there is a reduction in the producer surplus. Accordingly, the importing country gains from free trade since its consumers’ well-being has increased.
On the other side, a country that exports furniture observes a sudden rise in the domestic price level. With this, the size of consumer plus squeezes and they are worse-off. Producers, in contrast, better-off as there is a sharp increase in the producer surplus. Accordingly, the exporting country loses from free trade since its consumers’ well-being has decreased.
International trade theory predicts that a country can always benefit from trade if it produces the products in which it has comparative advantage. This is the economic basis of trade. But in real world, countries do not have such robust knowledge about their comparative advantage. It is thus socially valuable to discover whether the true and indirect domestic cost of producing a product or service are low or not.
Take the example of US sugar industry which is protected. Sugar protection policies in the United States generate producer surplus of $1.5 billion annually, only at the cost of a loss to the consumer surplus of $3.5 billion. Still, due to the pure political economy of protection, country’s protectionist policies towards sugar can be comprehended.
Given this piece of information, it is quite unlikely that the U.S. manufacturer, that uses sugar as an input can, change the government’s protectionist policies towards sugar. Though it may oppose, lobby or persuade the government, yet, the much organized and effective interests of the producers will not allow the any change in current protectionist policies. So we see that there are different views of free trade vs protectionism. Whether one is in favor or against it depends on the larger interests of the group concerned.
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