FREE TRADE

What is it?Benefits

Active AgreementsArguments Against

APHG Copeland2011

What Is a Free Trade Agreement?

• A free trade agreement is a pact between two countries or areas in which they both agree to lift most or all tariffs, quotas, special fees and taxes, and other barriers to trade between the entities.

• The purpose of free trade agreements is to allow faster and more business between the two countries/areas, which should benefit both.

Why All Should Benefit from Free Trade

• The underlying economic theory of free trade agreements is that of "comparative advantage," which originated in an 1817 book entitled "On the Principles of Political Economy and Taxation" by British political economist David Ricardo.

• Put simply, the "theory of comparative advantage " postulates that that in a free marketplace, each country/area will ultimately specialize in that activity where it has comparative advantage (i.e. natural resources, skilled workers, agriculture-friendly weather, etc.)

• The result should be that all parties to the pact will increase their income.

• "... the theory refers only to aggregate wealth and says nothing about the distribution of wealth. In fact there may be significant losers... The proponent of free trade can, however, retort that the gains of the gainers exceed the losses of the losers."

Comparative Advantage and Trade Agreements

• An example of Comparative Advantage

Recent U.S. Trade Agreements

• The U.S. signed a free trade agreement with Israel, and took effect on September 1, 1985. The agreement, which has no expiration date, provided for the elimination of duties for goods, except for certain agricultural products, from Israel entering the U.S.

• The U.S.-Israeli agreement also allows American products to compete on an equal basis with European goods, which have free access to Israeli markets.

• The U.S. free trade agreement, signed in January 1988, with Canada, was superceded in 1994 by the complex and controversial North American Free Trade Agreement (NAFTA) with Canada and Mexico, signed with much fanfare by President Bill Clinton on September 14, 1993.

Claims that 21st Century Free Trade Doesn't Benefit All

• Critics from both sides of the political aisle contend that free trade agreements often don't work effectively to benefit either the U.S. or its free trade partners.

• One angry complaint is that more than three million U.S. jobs with middle-class wages have been outsourced to foreign countries since 1994.:

• "Globalization is tough to sell to average people. Economists can promote the very real benefits of a robustly growing world: when they sell more overseas, American businesses can employ more people.

• "But what sticks in our minds is the television image of the father of three laid off when his factory moves offshore."

What are your thoughts? Practice free trade and help the world, while helping America or forget trading and keep jobs here in America?