Pros and Cons of Free Trade Agreements - Coursework Example

Pros and cons of free trade agreements University Student Id Course Date Pros and cons of free trade agreements Introduction I think free trade agreements like the trans-pacific partnership that has been proposed. However, some free trade agreements are controversial due to the complications that are associated with the trade agreements. For example, it is through free trade agreements that economy of the United States experienced a growth of around 5% annually. The partnership of the Trans-pacific is usually a trade agreed formed between the United States, Australia, Japan, Singapore, Vietnam, Malaysia and the New Zealand (Hertel, 631). The final proposal of the partnership was signed in the year 2016 in the New Zealand, even though in nowadays the proposal cannot be ratified because of the withdrawal of the United States from the partnership in the year 2017. Free trade agreements Free trade agreements have some benefits to employees, organizations among other stakeholders. The stakeholders can experience the benefits of the free trade agreements because of the increased foreign direct investment. It is through the increased capital flow where job opportunities can be increased leading to the creation of jobs for many employees and expansion of organizations because of increased investments from foreign countries (Baier, 82). For example, in the United States during the former administration of president Obama, made a claim that free trade agreement led to the promotion of the economic growth, enhancement on innovation, the creation of job opportunities and also improving the standards of living among others. However, the partnership of the Trans-pacific comprises of various measures which usually reduce the non-tariffs as well as the tariff barriers which affect trade. Also, the major aim of the participating countries was to complete the negotiations of the year 2012, whose negotiation process was prolonged due to disagreement over various issues such as the agriculture and also investments (Baier, Scott, and Jeffrey, 67). However, the finalized agreement of the partnership was signed in the year 2015, and then the agreement was enforced after it was ratified by more than six member states. The first free-trade agreement which the United States entered the Israel was effected in the year 1985, while its second agreement with the Canada was effected in the year 1989. However, the pursuit of the trade agreements in the United States has intensified. For instance, in the year 2001, the U.S entered into a trade agreement with the Jordan. Also, negotiations have been conducted concerning free-trade area covering the five central countries of America inclusive of the United States. In the year 2002, all the nations that had entered into free trade agreements with the United States got a 37.2% on exports and also 31 percent of imports (Hertel, 630). However, even though all the nations that are usually covered by the free trade agreements have already been negotiated, the agreement has not been approved. The long-standing policy of the United States of providing support to the trade liberalization which is multilateral has always been consistent and also well established. Moreover, the trade liberalization is usually based on the empirical evidence concerning the benefits which the participating nations accrue from the multi-lateral trade (Tsogas, 70). Benefits of free trade agreements Free trade agreements have been associated with numerous benefits that can be realized by different stakeholders in a state. The direct benefits which the participating countries accrue from the international trade in most cases are usually brought about by the differences in the production capabilities of the nations. Therefore, it means that the production capability of the various countries is always varied due to their differences in educational levels, technical knowledge and also natural resources. Moreover, trade is of great importance since it makes every country to concentrate and also put a lot of efforts in specializing in one area of production which they are best in. Hence, trade usually facilitates both import and export of goods as a way of exchanging products between the countries (Baier, 79). Importantly, through the importation and also exportation of the products, the world output can, therefore, increase rapidly. Also, the world output can still grow due to the greater usage of the economies of scale, whereby one factory can serve the markets in more than two countries. Also, trade may be of great importance in the economies of countries in various ways which include; the expansion of businesses, reduction of the monopolistic pricing and also facilitating the growth of the product productivity. In general, the establishment of trade between the countries is of great beneficial despite its impacts on the trade balance between the export values and the import values. For instance, some of the individuals usually hold a believe that the trade agreements are of great benefit because of increasing exports and at the same time harmful because of facilitating a rise in the imports. Therefore, either the harm or the benefit of the trade agreements can have positive or even negative impact on the balance of trade (Tsogas, 360). Moreover, it is the rise in both imports and the exports of every nation which usually creates room for the expansion of output by having production shifting to the effective producers. Therefore, this means that there is no single nation that would export its products without importation of various products, hence exports creates a way for the exchange of the economic products. Moreover, all the merits that are usually associated with the trade balances in most cases always relate to the nation`s balance with the entire world but not the balance of a country with another one. Therefore, the trade agreements do not have a lot of impact on the balance of the trade. Also, the balance of trade is usually equivalent to the difference that exists between the domestic investment and the aggregate saving (Baier, Scott, and Jeffrey, 68). This means that in order the trade agreement can have an impact on the balance of trade, the agreement should significantly interfere with either the domestic investment or even the aggregate saving. Disadvantages of free trade agreements Free trade agreements can result in increased competition in a country due to the large international corporations that enjoy economies of scale and cost competitiveness. The analysis that pertains the free-trade agreement is relatively more complicated as compared to the analysis of the trade liberalization. Moreover, the rules that govern the World Trade Organization usually stipulates for the removal of the high trade tariffs among the member countries and also reduction of the trade barriers between the member countries. For instance, through the reduction of the trade barriers, an equal competition is usually created between all the imports. However, according to the perspectives of the economists, when the domestic production is displaced by the importation of foreign goods, then consequently it results into a rise in trade (Hertel, 620). This displacement of the domestic production by the imports is sometimes known as the trade diversion. Besides, the difference between the aspect of trade diversion and the aspect of trade creation is of great significance since it helps countries in the determination of their economic benefit. However, even though the trade creation may result in negative impact on various sectors, in general, the trade creation is of great importance since it takes place when the import price is relatively lower as compared to the cost of domestic production. Therefore, through the trade creation, the domestic economy can acquire both goods and services at relatively low cost through the trade activities (Baier, 80). On the other hand, trade diversion is of less importance to the importing country since it makes the imports to be acquired at a high cost, even though few sectors usually benefit from it. The recent impacts of the free-trade agreements have created some little light concerning the possible impacts of the new agreements that are proposed. Moreover, the cost of transportation for conveying products from one country to another is more likely to increase. Also, the trade agreements would result in positive net effects which are relatively small. Also, the interference of employment of the people by the import increases would be very minimal. However, the impacts of the free trade agreements on the countries` economies would be larger since the majority of the partner nations have small economies (Rosewarne, 9). Furthermore, the economies of those small countries which are developing will be less diversified as compared to those economies of the developed countries. Conclusion Considering the economic benefits of free trade agreements in a country, I think it is beneficial to stakeholders like organizations and employees. For example, the major reason as to why the United States made a pursuit of the free-trade agreement is because of the progress made in the negotiations about the multilateral trade has become harder. Moreover, the membership of many countries to the World Trade Organization for a long time meant that the nations should come into an agreement after the negotiations. Also, nations are expected to reach an agreement to do away with the trade barriers so as to encourage trade activities among the countries. Also, the free-trade agreements result in the progression of the trade liberalization in the partner countries. However, some of the new members of the partnership especially the developing countries in most cases usually view their interests as distinct from those of the industrialized nations. Works cited Baier, Scott L., and Jeffrey H. Bergstrand. "Do free trade agreements actually increase members' international trade?." Journal of international Economics 71.1 (2007): 72-95. Baier, Scott L., and Jeffrey H. Bergstrand. "Estimating the effects of free trade agreements on international trade flows using matching econometrics." Journal of international Economics 77.1 (2009): 63-76. Hertel, Thomas, et al. "How confident can we be of CGE-based assessments of Free Trade Agreements?." Economic Modelling 24.4 (2007): 611-635. Rosewarne, Stuart. "Free trade agreements, temporary labour migration and the erosion of employment standards." Australian Options 79 (2014): 9. Tsogas, George. "Labour standards in international trade agreements: an assessment of the arguments." International Journal of Human Resource Management 10.2 (1999): 351-375. Read More