6. Evaluate the following statements: a. \"Free trade forces domestic producers

Question

6. Evaluate the following statements:
a. "Free trade forces domestic producers to pay attention to consumer tastes and preferences."
b. "Free trade would be desirable, but we can't afford to rely on the Russians, or the French, or even the British, for our military hardware."
c. "High tariffs to create more jobs will work for the U.S. because other, less powerful nations wouldn't dare retaliate."
d. "In several recent years, the U.S. has run a large commodity trade deficit. What we should do to counteract this is to buy less from abroad."
e. "In several recent years, the U.S. has run a large commodity trade deficit. We didn

Explanation / Answer

a) "Free trade forces domestic producers to pay attention to consumer tastes and preferences" This is very much the case. Having free trade allows consumers to suit their desires and interests by finding the best available product, whether that be domestic or foreign. In essence, free trade is the most complete form of perfect competition, where producers from anywhere may compete for the business of each individual consumer. Take for example a consumer in the market for a car; with free trade, this consumer has many options available to him or her. They may find the domestic product, Ford or GM, to be right up their alley. They may also find that the Japanese models offer much more consistency in terms of life of a car or that the German cars offer just the right of bit luxury and performance. However, all this is based off the consumers opinion of each product and thus could be different for each individual consumer. That is why producers, in a free trade market, must always pay very close attention to the consumer tastes and preferences. The key to succeed in a free trade is to predict what consumers want. It is easy to produce a product that you know someone wants today, but the real find is producing a product someone wants 10 years down the road. I don't think we should be afraid of free trade as it helps on two fronts: it produces healthy competition producing a better, cheaper product for everyone, and two it eliminates competitors that cannot compete and are only in business to take advantage of consumers. b) "Free trade would be desirable, but we can't afford to rely on the Russians, or the French, or even the British, for our military hardware." This statement has many flaws in its argument. If free trade were to exist, why would we as a nation need to rely on the Russians, French, or even British for military hardware. In a free trade economy, the consumer still has the decision in where to get their product. As a military, we have no obligation to get the cheapest hardware nor do we have any obligation of buying foreign products vs domestic products. c) "High tariffs to create more jobs will work for the U.S. because other, less powerful nations wouldn't dare retaliate." I believe that the statement is correct in terms of physical retaliation. I do not believe that high tariffs would lead to some sort of war or attacks on the U.S. but I do believe that there will be a huge backlash against the U.S. in terms of financial standing. The U.S. is highly dependent on foreign trade as our trade deficit is in the trillions of dollars. We therefore are bringing in trillions of dollars of goods from others while not offering much in return. If we were to begin to provide higher tariffs on foreign goods, foreign producers and nations may pull their products from the U.S. markets and refuse to negotiate with the U.S. Since our dependence on these goods (especially in terms of technology and food) is so high, it could produce a backlash from our own citizens. We may feel constrained to purchase a less quality product or to experience a "shoddy" "watered-down" market because the products we desire are too expensive compared to a similar model. Competition would go down and so would efficiency. The retaliation from others wouldn't be in the form of physical, but more in the form of control as our dependence on these items is too high. d) "In several years, the U.S. has run a large commodity trade deficit. What should we do to counteract this to buy less from abroad." Government money needs to be shifted to provide support to U.S. industry and markets. This money needs to be used to perform research and development so that the products that we produce cater towards the desires of the U.S. people. We must make not only a similar product, but a better product. We need to spend time and money on determining the "next" product that not only we want, but the rest of the world wants. Take for example Apple; they have produced a line of "I" products that are changing the world as we know it. How?? Simple, they produced a product that is head and shoulders above the rest of the worlds and did so buy spending time and money on research and development. e) "In several recent years, the U.S. has run a large commodity trade deficit. We didn’t need to worry, though, because exchange rate changes will eliminate the deficit." I believe this statement would have been true 10 to 15 years ago. However, with nations like China and India developing economies that are equal (or maybe even better) than our own, the value of the U.S. dollar is dropping dramatically. Therefore the exchange rate advantage that we once dominated is becoming non-existent. BOL

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