| There has been much debate about the issue of free | | | | another market with a good that is cheaper than the |
| trade and its effects on the economy. Without a | | | | country can produce domestically, in order to try and |
| doubt it has both positives and its negatives, but it | | | | drive domestic producers out of business and then |
| seems that many people trying to take a side on this | | | | raise prices once their competition is eliminated. This is |
| issue are doing so without being very well informed | | | | a tricky situation because the affects of this are |
| as to the economics behind international trade. This | | | | clearly negative in the long-run so we need to be |
| article is an attempt to discuss some of the common | | | | careful not to let this happen, but we should not let |
| misconceptions about free trade and explain why five | | | | the fear of foreign competition driving domestic |
| of the main arguments that anti-foreign trade | | | | producers out of business keep us from importing |
| activists stand behind don't hold true. The majority of | | | | foreign goods. "Dumping" is illegal in the United States |
| the voting public does seem to understand the | | | | and if there is any of it occurring, domestic producers |
| economics behind international trade and ignorantly | | | | will be able to spot it and put an end to it before it |
| form their biases against free trade. It's time that | | | | becomes a problem. They know how much it costs |
| they understand what they're talking about before | | | | to produce their good, and if their competition is |
| they take a side on the issue.More... | | | | selling items at obscenely low prices they will notice |
| The anti-free trade arguments that are most | | | | and investigate their operations. |
| common are: | | | | Free trade hurts the environment |
| * Free trade steals jobs away from the U.S. | | | | Since many nations have environmental standards |
| * We don't want our money leaving the country | | | | that are not as strict as the United States', people |
| * It encourages labor exploitation | | | | believe that U.S. firms are going abroad to take |
| * Other nations are"dumping" in the U.S. and not | | | | advantage of these lax standards and save money |
| buying our imports | | | | by not having to worry about the effects of their |
| * Free trade hurts the environment | | | | production processes on the environment. Well it is |
| Free trade steals jobs away from the U.S. | | | | true that many nations has lower standards than the |
| People complain about offshoring and how the | | | | U.S., but the firms from the U.S. in those nations |
| amount of jobs that domestic companies have | | | | consistently exceed the regulations of their host |
| moved overseas is hurting the economy. First of all, | | | | economies. |
| lets make sure that it is actually offshoring that is | | | | It's clearly not in a U.S firm's best interest to exploit |
| causing companies downsize their employee base in | | | | foreign labor or environmental standards. Just |
| the U.S. Lets look at manufacturing goods (MFG) as a | | | | because there is moral hazard for U.S. firms in these |
| whole, where in the U.S., the amount of employees in | | | | countries doesn't mean that they will actually try to |
| this industry is decreasing. People argue that this is to | | | | get away with exploiting foreign countries because |
| be blamed on trade, but you need to examine the | | | | the cost of being caught doing so will still have many |
| relative percent changers in other industries to really | | | | negative effects on a firm. |
| determine what's going on here. Technology and | | | | ____________ |
| Service industries are growing far more rapidly than | | | | This anti-foreign bias has somehow swept common |
| the manufacturing industry is shrinking. This means | | | | belief and convinced the common non-economist |
| that more jobs are opening up in these sectors which | | | | public that engaging in trade with foreigners has a |
| are higher paying, better jobs than the outsourced | | | | negative affect on domestic producers. On the other |
| industrial jobs being lost. Another component of this | | | | hand, people who have a background in economics |
| is that the technological advancement of the United | | | | understand that the positive affects of free trade |
| States is making production processes more efficient | | | | drastically outweigh the negative ones, and thus, |
| and cutting down the need for manual labor. | | | | support and encourage increased international trade. |
| Importing goods will cause the domestic producers of | | | | So what is it that has caused the general |
| those goods and their employees to lose out on | | | | non-economist public to believe that free trade is a |
| income that they would have received if there were | | | | bad thing? A well crafted survey conducted by |
| trade restrictions to protect domestic producers. It is | | | | Michael Hiscox provides a little insight as to why this |
| also true that keeping jobs in the United States is | | | | anti-foreign bias is so prevalent. Everyone in his |
| important, but it is more important that we allocate | | | | sample was asked "Do you favor or oppose |
| our resources to the best use possible. If someone | | | | increasing trade with other nations?" and "Is that |
| can produce same or better quality coffee than us | | | | strongly favor (oppose) or somewhat favor |
| for less, why wouldn't we buy their coffee and do | | | | (oppose)?," combined with one of the following |
| something more productive with our resources that | | | | introductions: |
| we were using to produce coffee? In other words, if | | | | * Pro-Trade Intro: Many people believe that increasing |
| a country has a comparative advantage in something | | | | trade with other nations creates jobs and allows |
| let them produce it and we'll buy it from them while | | | | Americans to buy more types of goods at lower |
| we specialize in producing something else that we | | | | prices. |
| have a comparative advantage in that they can buy | | | | * Anti-Trade Intro: Many people believe that |
| from us. In this situation both countries will benefit | | | | increasing trade with other nations leads to job losses |
| from free trade and experience greater consumption | | | | and exposes American producers to unfair |
| possibilities. | | | | competition. |
| We don't want our money leaving the country | | | | * Both Intros: Many people believe that increasing |
| When looking at the formula for GDP, (GDP = | | | | trade with other nations creates jobs and allows |
| Consumption (C) + Investment (I) + Government | | | | Americans to buy more types of goods at lower |
| Spending (G) + (Exports- Imports) (M-X)), this | | | | prices. Others believe that increasing trade with other |
| argument makes sense. If we are importing more | | | | nations leads to job losses and exposes American |
| than we're exporting then we're experiencing a trade | | | | producers to unfair competition. |
| deficit and lowering our GDP. Lower GDP means | | | | * No Intro |
| we're worse off right? Well yes... and no. Trying to | | | | The results: |
| keep money in the country should not be a priority. | | | | 1. The Pro-Trade Intro had no effect; people who |
| The reason that a country tries to have a high | | | | heard it were no more supportive of free trade than |
| amount of exports is not because the money from | | | | people who had No Intro. |
| those exports puts money into the economy, but | | | | 2. Hearing either the Anti-Trade Intro OR Both Intros |
| because that money made on exports is what fuels | | | | sharply reduced support for free trade. The |
| domestic production. If domestic producers couldn't | | | | Anti-Trade Intro reduced support by 17 |
| export their goods then they would be hurt, thus | | | | percentage-points; Both Intros reduced support by |
| hurting the economy as a whole. If the increased | | | | 19 percentage-points! |
| revenues for domestic producers is spent on | | | | These results suggest that people without a |
| importing cheaper foreign goods consumers can | | | | background in economics, in a free debate, will favor |
| benefit greatly. The way to promote exports is not | | | | protectionism. In other words, free debate favors |
| to try to limit imports, but is to be more efficient at | | | | protectionism. With voices from both sides of this |
| producing things than other countries are and to | | | | issue trying to turn favor towards their stance, the |
| exploit these advantages by providing them with | | | | vast majority of the non-economist public have been |
| goods at a lower cost than they can produce them. | | | | persuaded that free trade is a bad thing for the |
| Free trade encourages labor exploitation | | | | economy. The reason that this anti-foreign bias has |
| This argument is founded in the belief that the U.S. | | | | swept the nation is only because it is easier to see |
| firms offshore their production processes to save | | | | the local appliance store going out of business |
| money, but in doing so force low-skilled workers in | | | | because a Wal-Mart came into town than it is to |
| that country to be subject to inhumane working | | | | measure the increased producer surplus provided by |
| conditions and prevent them from ever getting out | | | | that Wal-Mart to all of its customers. It is true that |
| of poverty. The harsh truth of the matter is that | | | | Wal-Mart makes it harder for some other local |
| these low-paying jobs and harsh working conditions | | | | businesses to turn a profit because they simply can |
| are actually the providing thousands of their | | | | sell things at a lower price than smaller local |
| employees to be able to feed and clothe themselves. | | | | businesses, and it does turn out that many of the |
| Trying to reduce imports from nations like these or | | | | products available at Wal-Mart are foreign made. |
| prevent offshoring to less developed countries | | | | What is not taken into account is how much money |
| actually hurts these nations. The U.S. is doing what it | | | | people are saving by shopping at Wal-Mart, and when |
| can to help prevent abusive child labor in foreign | | | | you look at these numbers you will see that the |
| countries. They pay a wage premium of around 10 - | | | | positive affects of having a place like Wal-Mart to |
| 20% more than employers in their host countries, | | | | shop vastly outweigh the negatives. |
| and the U.S. is the #1 contributor to many different | | | | “What is prudence in the conduct of every |
| efforts to put an end to child labor and unacceptable | | | | private family, can scarce be folly in a great kingdom. |
| working conditions. | | | | If a foreign country can supply us with a commodity |
| Other nations are"dumping" in the U.S. and not buying | | | | cheaper than we ourselves can make it, better buy it |
| our imports | | | | of them with some part of the produce of our own |
| "Dumping" is when other countries try to flood | | | | industry. |