Pros and Cons of Free Trade
Although free trade and tariffs' effects on the global economy are hot-button issues, they are hardly new concerns or issues the United States is tackling for the first time. In 1994, the United States, Mexico and Canada implemented the North American Free Trade Agreement (NAFTA), one of the first and biggest free trade agreements in the world. The three nations all agreed to reduce tariffs and other barriers. More than twenty years later, advocates and opponents of free trade are still debating free trade pros and cons as well as the specific advantages and disadvantages of free trade agreements like NAFTA.
The big argument in favor of free trade is its ability to improve economic efficiency. According to basic economic theory, free trade policies mean that each country focuses on its comparative advantage, lowering the price of goods and making everyone better off. If the United States is really good at making cars and China is good at making televisions, free trade rules should mean that each country plays to its strengths instead of wasting time and effort doing less efficient tasks.
Economic efficiency might be beneficial for the economy as a whole in the long run, but that doesn't much help the factory worker who loses his job in the short-term. Free trade makes a nation's overall economy more productive, but it also can force millions to change careers. NAFTA, for example, may have destroyed more than 1 million jobs in the United States. When discussing the pros and cons of protectionism, the practice of taxing imports heavily as a way to maintain local industries, the issue of job loss is always an important point.
Barriers to trade create lots of opportunities for political corruption, according to some advocates of free trade. Powerful interest groups can convince governments to give them special protections like tariffs or subsidies, while less powerful groups have to go it alone. That may give established wealthy businesses huge advantages over rising entrepreneurs. Free trade proponents say eliminating trade barriers creates a level playing field for everyone.
Trade barriers might create opportunities for corruption, but so do free trade agreements. Economists may envision a society where trade barriers vanish entirely, but free trade agreements are negotiated and signed by politicians with their own interests to worry about. As a result, the agreements usually are immense documents full of loopholes and rules that create big advantages for established businesses. Economic experts have noted that while NAFTA proponents said the agreement would deregulate commerce in North America, in many cases it just replaced existing regulations with new ones that favored the biggest corporations.
One strong advantage is that free trade reduces conflict by encouraging countries to rely on each other for foods and services. Some economists have argued this interdependence makes wars much less likely, since neither side would want to risk losing access to the other's markets.
Opponents of free trade often argue that it encourages businesses to move to countries with poor environmental and labor regulations. These moves could potentially lead to systematic labor abuses and destruction of the environment. For example, a coal mining company in the United States might have to pay workers a high minimum wage, adopt aggressive safety policies and protect local rivers from pollution. Free trade agreements might allow the mining company to move operations to a country without any of those rules, allowing it to cut costs by imperiling workers and the environment.