Countries enter into trade agreements to enhance trade between them by lowering barriers to trade. The United States in general and workers have benefited from free bilateral and multilateral trade agreements. These agreements are normally negotiated to advance and reflect the interests and values of the country ( Balassa, 2013) . They also align the interests of the U.S with those of its trading partners to generate mutual benefits. Contrary to common arguments, there is no evidence to prove that multilateral trade agreements are inferior to bilateral agreements. In fact, given their scale, multilateral trade is delivering significant benefits to the U.S economy than bilateral trade agreements.
Free trade agreements are used by countries around the globe since the 1980s to open market and reduce barriers thus creating and increasing standards of investment, protection of intellectual property rights, and currently digital commerce ( Singh, 2010) . The U.S recognized that expanding global markets are essential for the growth of investments and trading opportunities. The entry of India and China into the global economy and emerging economies of Asia, Latin America, Africa, and Eastern Europe have brought billions of consumers with purchasing power into the world market. With reduced barriers to trade, the U.S and other western countries have increased trade and investments overseas to capitalize on growing markets. U.S companies have taken initiates to exploit 95% of the global market and 75% of purchasing power residing outside its borders.
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There is clear evidence that free trade agreements benefit U.S economy in multiple ways. The U.S trade Commission analysis found that free trade agreements (FTA) have a positive impact on the GDP, wages, and employment. In particular, FTA reduced U.S trade deficits by close to 60% or $87.5 billion in 2015 and $13.4 billion in tariff savings thus benefiting U.S consumers through lower costs (Bay Area Council Economic Institute, 2018). In summary, trade agreements have allowed the U.S to develop strategies to capitalize on the open markets and cement its economic leadership position in the global market.
Negative Impacts of Trade agreements
International trade creates jobs for exporting industry but also eliminates jobs in other industries as imports displace domestic products. The loss of jobs is significant in the manufacturing sector. According to Economic Policy Institute (EPI), the U.S net job was caused by high volume of imported goods than jobs created by exports (Bivens, 2008). Trade impacts increase outsourcing of jobs as companies expand to other countries with cheaper labor. This is because a reduction in tariffs makes goods from the low cost of labor cheaper, thus making U.S companies less competitive in the market. As a consequence, they reduce their employees and move to other countries with cheaper labor. This has been the main criticism of NAFTA agreements which has been accused of sending U.S jobs to Mexico.
The EPI reported that trade agreements have led to a reduction in domestic wages. Labor constitutes a significant business cost and when a country is exposed to cheaper goods from low-cost countries, it depresses domestic wages as companies try to reduce wages to remain competitive in the market. The lower wages for local employees in this sector increases wage inequality in the economy. Trade agreements have led to the theft of intellectual property. This is because most developing nations lack the laws to protect inventions, patents, and new processes. Even in countries with these laws, they still lack enforcement capability. These countries lack institutions such as the judiciary and police to enforce patent laws.
Impact of Trade Agreements on Manufacturing Industry
In combination, close to half of U.S manufactured exports are bought by FTAs partners, even though they account for only 10% f the global economy and 6% of global consumers. In other words, the manufacturing sector of the U.S is benefiting from U.S free trade partners. In 2015, United States recorded about $6.4 billion in trade surpluses with its free trade countries, compared to close to 490 billion trade deficit with non- free trade partners. China is the largest trade deficit with the U.S yet they have no trade agreements.
In contrast to common beliefs, trade agreements are not the main cause of eroding U.S manufacturing sector and jobs ( Clinton, 2011) . In fact, the manufacturing output of the U.S is growing with companies making a record $2.2 trillion value of goods in 2015. This is contrary to employment that has been on the decline for decades. Nonetheless, only a small portion of declining employment can be attributed to trade agreements. The decline in manufacturing jobs is largely attributed to the use of technology to make production efficient. The similar case applies to agriculture which has recorded a 13 percent growth since 20101, but jobs have declined by 15 percent due to the use of technology in agricultural production. Therefore, free trade agreements have a positive effect on the manufacturing sector of the U.S.
Conclusion
International trade agreements have economic effects through trade flows, productivity, employment, and wages. The negative effects are visible in reduced wages and wage inequality in the economy, stealing of patent rights, and loss of jobs. However, trade agreements have allowed U.S firms to expand globally through investments and trading opportunities. In contrast to common beliefs, trade agreements are not the main cause of eroding U.S manufacturing sector and jobs. It has been noted that manufacturing sector of the U.S is benefiting from U.S free trade partners. Therefore, Free trade agreements are used by countries around the globe to open market and reduce barriers.
References
Bay area Council Economic Institute (2018). The real Impact of Trade Agreements: How trade affects jobs, Manufacturing, and Economic Competitiveness. Retrieved from http://www.bayareaeconomy.org/report/the-real-impact-of-trade-agreements
Josh Bivens. J. L. (2008). Trade Jobs and Wages. Economic Policy Institute.
Singh, T. (2010). Does international trade cause economic growth? A survey. The World Economy , 33 (11), 1517-1564.
Balassa, B. (2013). The theory of economic integration (routledge revivals) . Routledge.
Clinton, H. (2011). America's Pacific century. Foreign policy , (189), 56.
