Free Trade Makes Sense for Everyone

However, when they trade, both countries are able to produce items they are more efficient at thereby increasing total production, which increases their individual consumption possibilities curve. (Fig.2) 

Therefore, when the two countries trade consumers of both countries has access to more goods. Furthermore, since the countries are now producing products they are the most efficient at, the price to the consumer is lower because the cost of production is lower.

        Now that we have shown that more, and cheaper, products are available for consumption, we can show what that will do in terms of supply and demand. The laws of supply and demand state that the cheaper the product, the more demand there will be for that product. Let us isolate wheat to show what will happen on the U.S. side of the equation in this example. (fig.3) Since we have essentially decreased the cost of production we will create a positive shift in the supply curve thereby decreasing price and increasing demand. The increase in demand will create a need for more jobs. By looking at these models, we can see that trade increases U.S. production, creates demand for U.S. goods, and increases employment for

 U.S. workers (in this example). Now let’s view the model in terms of oil. If we trade with Saudi Arabia for oil, the cost of oil production will decrease thereby shifting the supply curve positively as it does for wheat in figure 3.  This leads to lower consumer cost for oil, which will allow U.S. citizens to have more income left to purchase other items thereby giving them increased purchasing power, which leads to a higher standard of living. This model has been proven by data stemming from trade agreements from the past century. The protectionist cannot refute that real GDP per capita has risen dramatically, productivity has risen, and the standard of living has risen, all from free trade.

        The protectionist economic argument is that imposing tariffs and quotas will decrease aggregate unemployment. These protectionist policies will shift the demand from imported goods to domestic goods because domestic goods will be cheaper. In turn, domestic goods will be demanded more thereby increasing the need for additional labor, which will reduce unemployment. These new workers will have additional income to spend thereby increasing the demand for goods causing further expansion in industry. However, they leave out all of the negatives that this type of policy would foster. If we impose tariffs and quotas on our trading partners, they in turn will do the same. This will lead to less demand for domestic goods abroad, which, will lead to lower production, and fewer jobs. Additionally, fewer domestic products will be demanded by our trading partners. This is because those products they have been exporting will be in less demand and workers will be laid off, which will lead to less income thereby decreasing demand for our products. What ultimately happens is that there is a trade off in employed workers in protected industries while those in non-protected industries (exporters) are loosing their jobs. Furthermore, we have kept U.S. consumers from enjoying goods and services at the best price in order to protect some jobs at the expense of others. In addition, because of the lack of competition, those protected industries have no reason to become more efficient thereby leading to less productivity.

        As I stated earlier, since the “protectionist” cannot prove their position with any economic model or data, they have leaned toward moral arguments to shore up their position. According to the Wall Street Journal, “… the Democrats' main economic message for 2004 is that free trade is immoral and unpatriotic”. This position of course is being taken in order to gain labor votes. The point here is not to include politics in this debate, but others as well as the democrats have brought up this argument. We can also show this argument holds no merit based on moral theory (unless we subscribe to the egoist point of view, which is not a well-received position). Based on the Utilitarian theory of morality, it states in a simplified fashion, decisions should be based on the most good for the most people. Using a protectionist policy deprives many more than does using a free trade policy. In “Is Free Trade Moral” the author states,

                …is it moral for a government to deprive Americans of their freedom to enhance                         their standard of living by buying foreign goods and services? Or is it moral to                         stop foreign people from working their way out of poverty by closing access to                         the U.S….It is also hardly moral for the U.S. to foist its own policies on other                         democracies as a precondition for trade. Mr. Edwards complains that past trade                         deals allow companies to profit by "paying people pennies a day to work in                         disgusting conditions”. Even if this is true in some places, the legacy of trade is                         that it raises living standards over time. In any case, even the world's only                                 superpower doesn't have the right to micromanage the developing world's                                 economic policies, and it would be bitterly resented if it tried. Isn't that                                 "unilateralism"?

Unilateralism and protectionism are policies that adhere to the egoist moral philosophy—in terms of the U.S. as being one. In fact, this does not even protect all U.S. citizens as described earlier in this paper. Therefore, if the protectionists are attempting to push their policy using moral arguments, we can see it definitely does not produce the best results for the most people even in the U.S. let alone worldwide. Using utilitarian theory (which is the most accepted theory), the protectionist argument is also defeated. This leaves the protectionist point of view without any logical argument to reinforce its position.

Conclusion

        While my paper was argued using products alone, the same holds true for services. We can only produce so much whether or not we are talking about products or services because of limited resources. In the case of services, we are talking about the resource of time. The current debate raging within the country is outsourcing of service jobs. The protectionist point is that we are loosing jobs to other countries. Yes, this is true in the short term. The reality is that the countries we outsource services to are more efficient at performing those services—for the time being at least. This simply means that we have to find services that we are more efficient at completing. Which, we will do in the long-run thereby increasing overall (global) production in both products and services. This in turn will lead to the most and least costly goods and services available to the most consumers—the highest level of efficient output.

        My position on the issue of globalization and free trade is that we—the U.S.—should embrace them. I am not completely ambivalent to those who are loosing their jobs due to trade. I feel that we should have (and we do) some type of social safety net in place for those individuals for such a time that they can be retrained to take a job that industries in this country are more efficient at doing. However, with that caveat, I must say that we should look forward to trading freely with other countries so that we, the consumers and producers of this country, can reap the benefits created by doing so. I truly believe that this country has always—and will—rise to the occasion, and become better off in the long-run if we accept the free trade position.