Free Trade Is Not Damaging The U.S. Economy

1
Free Trade Is Not Damaging The U.S. Economy

• Angela Warner
• Nam (Leon) Lai
• Ed Nickel

2
Adam Smith

• It is the maxim of every prudent master of a
  family never to make at home what it cost him
  more to make than to buyIf a foreign country can
  supply us with a commodity cheaper than we
  ourselves can make it, better buy it of them.
• Adam Smith

3
Agenda

• What Is Free Trade?
• History
• Why Free Trade Is Good?
• Common Questions About Free Trade
• Free Trade In Practice

4
Free Trade

• International business not restrained by
  government interference or regulation, such as
  duties.

5
History

• Some protectionists contend that the United
  States grew economically strong and prosperous
  because of trade barriers. But America has
  experienced several phases in its trade history.
  It is more accurate to say that the country grew
  in spite of import restrictions.

Some protectionists contend that the United
States grew economically strong and prosperous
because of trade barriers. But America has
experienced several phases in its trade history.
It is more accurate to say that the country grew
in spite of import restrictions.
6
History

• From Colony to Republic
• The First Wave of Protectionism
• Failed Tariff Policies
• Turn-of-the-Century Tariffs
• Deepening Depression

7
20th Century

• Gold Standard used as worldwide measure of goods
  and
  
• Germany and United States gaining economic power
  on Britain
  
• After the Wall Street crash, the world reverted
  to protectionism
  
• More unemployment and prolonging the downturn was
  felt

8
20th Century

• Some countries turned to dictators like Hitler
  for economic and political salvation
  
• Nations became dependent on the revival of world
  trade for vital income
  
• America was under pressure to open up its markets
  to other countries

9
20th Century

• In 1948, the General Agreement on Tariffs and
  Trade (GATT) was formed
  
• The organization helps promote free trade by
  persuading countries to abolish import tariffs
  and other barriers to open markets
  
• The first round of trade negotiations resulted in
  45,000 tariff concessions
  
• Created "economic miracles" in Germany and Japan

10
20th Century

• In 1964-67, the Kennedy Round of talks achieved
  tariff cuts worth 40bn.
  
• In 1995, the World Trade Organization superceded
  GATT.
  
• The new organization was given more powers to
  enforce free trade rules, and a clearer mandate
  to promote free trade.

11
Why Free Trade is Good

• Comparative advantage and the gains from trade.
• Consumer sovereignty and the Invisible Hand
• Misallocation of resources

12
Why Free Trade is Good

• Consumers
• Allows consumers to buy more higher quality goods
  from countries at lower prices then if they were
  restricted.
  
• Creates wealth because people can get things more
  cheaply.
  
• Lower prices give us money that we can use to buy
  things made at home or invest it.
  
• Leisure time.

13
Why Free Trade is Good

• Firms
• Specialization
• Increase productivity

14
Why Free Trade is Good

• Higher standard of living
• Imports we receive allows us to enjoy a higher
  standard of living.
  

15
Why Free Trade is Good

• Lower commodity prices
• The effect of trade for consumers it that the
  price of all varieties of the product will fall.
  
• Firms produce further down along its average cost
  curve which means that it lowers it per unit cost
  of production.
  
• Competition in the industry, in turn, forces
  profit to zero for each firm which implies that
  the efficiency improvements are passed along to
  consumers in the form of lower prices (economies
  of scale).

16
Why Free Trade is Good

• Costs of tariffs exceed benefits
• Retaliation
• Negative Rates of Protection
• Promotes competition in domestic markets

17
Why Free Trade is Good

• Economy
• It creates income for the community by
  reallocating jobs and capital from
  lower-productivity to higher-productivity sectors
  of the economy.

18
Economy continued

• According to the Economic Report of the
  President, Imports of goods have kept inflation
  low, while imports of capital have kept interest
  rates low, helping to sustain rapid income
  growth.
• In the export sector, job wages average to 12.5
  to 18 percent higher than other jobs
  
• Adam Smith stated that what is better for the
  consumers is always better for an economy
  

19
Interdependence

• After free trade, countries will trade more which
  establish interdependent.
  
• Free trade promotes a greater awareness of the
  needs of others. As they become more aware of the
  needs of others and more dependent on trade for
  their higher standard of living, they will tend
  to behave more peacefully toward their fellow
  men.
• It encourages peaceful cooperation and
  discourages violence.
  

20
Right To Trade

• Exchanging what we produce with others for mutual
  benefit is an inalienable human right
  
• The government should not be able to get between
  me and the person I want to trade with unless
  that trade threatens national security or if we
  are at war

21
Common Questions

• Do imports destroy jobs?
• Does free trade lead to a race to the bottom in
  workers rights in less-developed countries?
  
• What are the benefits of free trade for the
  average person?

22
Common Questions

• Does the trade deficit harm domestic economic
  performance?
  
• Does globalization give companies/countries an
  incentive to abuse the environment?
  

23
Common Questions

• Does free trade force countries to make economic
  gains at the expense of their cultures?
  
• Is free trade a threat to the US manufacturing
  base?
  
• Are unilateral sanctions effective foreign policy
  tools?

24
Imports are badExports are good

• Milton and Rose Friedman wrote years ago A
  "fallacy seldom contradicted is that exports are
  good, imports are bad. The truth is very
  different. We cannot eat, wear or enjoy the goods
  we send abroad. We eat bananas from Central
  America, wear Italian shoes, drive German
  automobiles, and enjoy programs we see on our
  Japanese TV sets. Our gain from foreign trade is
  what we import. Exports are the price we pay to
  get imports.

25
North American Free TradeAgreement (NAFTA)

• Agreement with United States, Canada, and Mexico
• Signed 10 years ago
• Public policy success

26
NAFTA An Economic and Foreign Policy Success

• Exaggerated Impact
• A Foreign-Policy Triumph
• Giant Sucking Sound, Where Art Thou?
• American Jobs
• Foreign Investment
• U.S. Manufacturing

27
World Trade Organization (WTO)

• Uruguay Round
• Membership
• Agriculture and services
• Political opposition to free trade grew

28
World Trade Organization (WTO)

• When the WTO tried to launch a new round of trade
  talks in Seattle in 1999, mass protests on the
  streets and disagreements between rich and poor
  countries led to failure.

29

• Two years later in Doha, Qatar, the WTO was more
  successful after fierce debate to overcome key
  controversies, a new round of trade talks was
  launched.
• But the gap between rich and poor countries still
  remains large and many critics say that free
  trade policies are benefiting western nations
  more than developing countries

30
Conclusion

• We believe that it would be in the United States
  best interest to abandon its current negotiating
  posture, which is that we will take down our
  trade barriers if you take down yours.
• Countries that are unilateral free traders have
  done exceptionally well. Ex Hong Kong and
  Singapore.

31
Conclusion

• History
• Why Free Trade Is Good
• Common Questions
• Free Trade In Action

32
Questions