What benefit(s) does free trade contribute to the United States. Does the good outweigh the bad?

Question

What benefit(s) does free trade contribute to the United States. Does the good outweigh the bad?

Answer 1

First, I support everything that MADHAV has explained in his message. This is, perhaps, an ideal scenario which does not explain the bad consequences of the '..what if..' scenarios.

The current scenario for the US economy in terms of free trade is not so good, and does not really adhere to the ideal.

The fact that the American Dollar is the world Reserve Currency has provided many advantages to American World Trade as well as to the American way of life. But it is noticeable, with the weakening and volatile dollar, that more and more countries are unlinking their currencies from the USD - Russia, Japan, Kuwait, Venezuela, Brazil,

China etc. Some of these countries have begun trading oil and other major commodities in other currencies like the Euro or Yen. This action will both help to further devalue the dollar and greatly weaken its hegemonic position in the world.

The US dollar(which hasn't been pegged to gold since 1971) is very weak and volatile because of rising oil prices - which continues without abating. The weak dollar is good for US exports, but not good for imports. China, a huge exporter and importer of goods, has imposed a tax on US goods. This has been done to both protect her own rapidly expanding domestic markets, as well as in response to the US govt's mismanagement of its dollar. In response the US govt is current passing legislation to tax all Chinese goods incoming to the US. In her own response to this action, China has threatened to dump all its trillions of $ currency reserves and switch to the Euro or Yen as its reserve currency. This action will further drive down the value of the dollar, effectively wrecking the American dollar and driving the US economy into deeper recession. So much for "Free Trade"...

And I haven't addressed any of the Free Trade problems currently posed by Climate Change, Overpopulation or Food Shortages.

So, at the moment, things aren't looking good for the US.

Manufacturing and employment are now shrinking. The US govt still does nothing about its $9 trillion national debt, the dollar is a mess, oil prices are rising continuously, the cost of living is soaring and wages are static.

The US is in for a rough ride I think....

Answer 2

President William McKinley stated the United States' stance under the Republican Party (which won every election for President until 1912, except the two non-consecutive terms of Grover Cleveland) as thus:

"Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards."

The situations has evolved a lot now and your question is very good.

Specific benefits of free trade for a country like the United States is access to other markets. For e.g. Free Trade with Bangladesh means that the US imports clothes from Bangladesh and doesnt charge duty on imports to its local-traders - which results in lower cloth prices in the US and more jobs in Bangladesh but it also opens door for Coke, Pepsi and other manufacturers like US Steel, Infrastructure Companies, IBM, etc.

Specific Beneifts are:

- Trade of goods without taxes (cheaper for consumers in the US)

- Trade without barriers (more access for other countries to sell its speciality to the US - like "nano-technology" from S.Korea)

- The absence of trade-disorting policies (helps eliminate monopolies. Like up until 1930s US used to buy textile from Europe because Europeans had better access to the US - now it buys directly from Bangladesh)

- Free market access (Microsoft Windows is very famous even in Burma, Iran and Iraq - because US Technology has near Free market access in these countries)

- Free movement of capital (the US is major investor in British, German and Indian industries). This brings money back to the country

- Free movement of Labour (this is a policy with Britain, France and Germany - and the US has benefited a lot as all other countries have from the US)

But more than anything, Free Trade is a policy that initiates and supports Globalisation. And with economy like the US Globalisation means strong US$ and strong fiscal milestone.

Thanks

Madhav