Benefits of Free Trade

by Anonymous ’21

It seems that nowadays, the institution of free trade is under attack from the left and the right.

During the Trump Administration, the 45th President decided to increase tariffs on Chinese goods, specifically on aluminum and steel.

Furthermore, former President Trump removed the US from the TPP (Trans-Pacific-Partnership) and renegotiated NAFTA (North American Free Trade Agreement) into the more protectionist USMCA (United States Mexico Canada Agreement).

From the left, people like Senator Bernie Sanders (I-VT) have attacked free trade.

In a 1993 Op-Ed in the Seven Days paper that, “NAFTA will accelerate all of these negative economic trends, and will only benefit the ruling elites of the
United States, Mexico, and Canada.”

In a more recent editorial in the Philadelphia Inquirer, Sanders claimed that, “Let’s be
clear: The trade agreement is opposed by virtually the entire grassroots base of the Democratic Party.”

All this is to say that both the candidates do not understand how much Free Trade Agreements have helped the US and the world.

The term free trade is often a bit of a politically fluid term, so for this article, I define free trade using the definition provided by the OECD (Organization for Economic Development and Cooperation) which defines free trade as, “…when
goods and services can be bought and sold between countries or sub-national regions without tariffs, quotas or other restrictions being applied.” With this in mind, the benefits of free trade can be better explained.

One of the greatest benefits of free trade has been the massive economic benefits.

According to the Office of the United States Trade Representative, from 1993-2003, the United States economy grew by 38%, while Canada and Mexico experienced 30% growth. This was caused by NAFTA, an agreement that both Trump and Sanders have attacked.

Furthermore, trade between the three countries increased with the Office of the United States Trade Representative stating that “…total volume of trade among the three NAFTA partners expanded from $289.3 billion in 1993 to $623.1 billion in
2003.” What this means for the common American person is that they are going to have access to more goods from all different kinds of places.

The genesis of these benefits come from the fact that nations are no longer have to deal with messy taxes, quotas, and/or tariffs, barriers to trade that significantly increase the cost to trade, preventing people from having access to goods and services from different places.

Furthermore, Free Trade has caused the number of jobs to increase.

According to Mauro F. Guillén, Professor of International Management at the Wharton Business School, “NAFTA…has also created jobs in the United
States—anywhere between two and four million jobs depend on trade with Mexico.”

This happened because the lowering of tariffs between the three North American countries would reduce costs, so many foreign businesses started to open
factories in America. One prominent example of this was the automotive industry as companies such as Honda, BMW, and Kia opened shop in the US as opposed to their home countries.

What this does is actually benefit the common people that Trump and Sanders claim to speak for as the influx of foreign investment into the country causes more jobs to be created.

Many protectionists claimed that NAFTA and other trade agreements have cost jobs. However, many of those job losses can be better attributed to automation.

According to the Financial Times, “The US did indeed lose about 5.6m
manufacturing jobs between 2000 and 2010. But according to a study by the Center for Business and Economic Research at Ball State University, 85 percent of these jobs losses are actually attributable to technological change — largely
automation — rather than international trade.” As a result, if the people in charge want to actually fix the problem, they should be looking at automation rather than free trade.

Populists in the US love to pit groups against each other. With Sanders and Trump, they pit domestic workers against foreign workers and use free trade as an avenue to fuel anger at free trade.

However, people need to avoid playing the games of politicians and realize that free trade has transformed the world into a more prosperous place.

Allowing countries to specialize in producing goods and services that they are better suited for; goods that they have a comparative advantage in producing makes the most sense.

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