In today’s global market, trade is more important to the economies of nations around the world than ever. Today’s economic markets are globally-linked, and it is near impossible for a nation to flourish without engaging in favorable trade of some form. The United States has long been associated with free trade agreements, such as the North American Free Trade Agreement (NAFTA) and the more recent Trans-Pacific Partnership (TPP). However, there has been much debate on the efficacy of such trade agreements, especially considering the United States’ recent presidential election, which saw President Trump win the November 2016 ballot while supporting a protectionist stance on trade. Therefore, one must ask the questions, Is free trade good for the United States? and Is it good for all nations? This paper posits that free trade is ultimately good for the United States, and for most, if not all, countries simply because it allows for the ease of exports, free from punitive tariffs, and for comparative advantage; in addition, studies have shown that protectionism is largely a political motivation, not an economic ideology.
Essentially, issues of global trade concern to two binary stances: protectionism versus free trade. Protectionism, such as the platform on which President Trump ran and the Republican agenda, essentially argues that we should raise tariffs on imports (thereby making imported goods more expensive and national goods more competitive) and abstain from engaging in free trade agreements, such as NAFTA, since those agreements can put our country in a negative trade deficit. By contrast, free trade proponents argue that protectionism is not a viable option in today’s global economy. Free trade encourages global competition, which spurs innovation and opens overseas markets for American goods. Lowered national tariffs also foster a sense of global partnership and encourage other countries to lower their own (as opposed to the suspicion and foreign resentment created by protectionist strategies). It is never a good idea to alienate potential global trade partners, especially when statistics have shown that reduced tariffs often lead to increases in the national economy: “The Peterson Institute for International Economics estimates that ending all trade barriers would increase U.S. income by $500 billion” (Amadeo).
One of the biggest cases for free trade was posited by David Ricardo a 19th century economist who studied what came to be known as comparative advantage in his text, On the Principles of Political Economy and Taxation. There are many nuances to Ricardo’s idea of comparative advantage, but, generally, it is a theory that involves the production of goods. A country is said to have a comparative advantage when it can produce certain goods or provide certain services “cheaper” (meaning when all factors are considered) than other countries (“Why Trade is Good”). Therefore, if a country can specialize in the production of resources to export at a lower cost, then it will help the economy. Comparative advantages help both trade partners, since it is more beneficial for countries to specialize in products to export and import the rest, than trying to produce all goods at once and import none.
Note that the free trade discussion, while directly relevant to the United States’ economy, is also applicable to all countries around the globe, regardless of United States affiliation. The benefits of free trade, i.e., lower retaliatory tariffs and increased global partnership and the ability to gain a comparative advantage, are benefits that can be reaped by most nations. Through factors such as geographical location, workforce specialization, and capacity for production, nations around the globe can carry certain specializations—such as Japan’s domination in the car market in the last couple of decades—and enjoy trade partnerships.
Since free trade seems a superior economic option for most nations, one wonders why protectionism has been such a hot button topic of late, i.e., considering the November U.S. election and other global decisions like Britain’s verdict to leave the European Union. Interestingly, studies have suggested that protectionist policies can have political motivations instead of economic. A study entitled “Policymakers’ Horizon and Trade Reforms: The Protectionist Effect of Elections” that calculated votes on 267 United States senators found that “senators serving out the final two years of their terms were significantly more protectionist” (Lowenstein). The only politicians from this study who did not vote more protectionist approaching reelection where those about to retire and those whose position in the reelection was secure. This study suggests that protectionism is nothing more than a political maneuvering strategy, used by politicians to garner national favor and win election or reelection. Essentially, Americans, or individuals from any nation, want to hear their political leaders champion nationalistic rhetoric, i.e., raising tariffs, protecting homeland jobs, limiting foreign influence, etc. This political ideology has little to do with the economics of the debate between protectionism and free trade and more to do with isolationist and xenophobic rhetoric popular around times of election.
Ultimately, in today’s global economy, where the economies of all nations are tied together (recall the fallout from Greece’s bankruptcy on the European Union), it is more important than ever to promote free trade. Free trade encourages global partnership and transparency and can ensure comparative advantages for nations that specialize in producing and exporting certain goods. Protectionist policies are largely politically-drawn systems of rhetoric that have little bearing on economic theory. Going forward, global partnership is the only favorable solution to ensure trade balances and healthy global economies.
- Amadeo, Kimberly. “Trade Protectionism: 4 Methods with Examples, Pros and Cons.” The Balance. 1 March 2017, https://www.thebalance.com/what-is-trade-protectionism-3305896. Accessed 28 March 2017.
- Lowenstein, Roger. “Why Attacking Free Trade Is Great Politics and Bad Economics.” Fortune Finance. 23 Jan. 2017, http://fortune.com/2017/01/23/trump-nafta-protectionism-tariffs-politics/. Accessed 28 March 2017.
- “Why Trade is Good for You: A Short Tour of Economic Theory.” The Economist, 1 Oct. 1998, http://www.economist.com/node/605144. Accessed 28 March 2017.