In the modern economy, there are suggestions and arguments that free trade is economically destroying American economic growth. The arguments propose protectionism as the alternative approach through which a country can achieve economic growth, thus, preventing excessive loss of jobs and decline in economic growth. Free trade refers to the creation of policies that give investors, consumers, and distributors an opportunity to maximize interests by expanding their activities in any country. Though it may be arguable that free trade leads to loss of jobs, it is evident that employment opportunities created to exceed the number of jobs lost increases the country’s GDP (Krueger, 2012). For example, America encouraged globalization in the period between 2000 and 2010 and it experienced the benefits of free trade. During this period, the United States experienced an increase in the level of output by 40% (Krueger, 2012). Through internationalization and free trade, it is evident that the manufacturing of America is significantly high than that of Canada, Italy, and Brazil indicating that there are several job opportunities in the country. Protectionism and free trade have advantages and disadvantages to American Economic Growth.
The argument that free trade has changed to a productivity war because countries seek to engage in free trade conducts with countries where they can produce at a cheaper price. For instance, America focuses on making investments in China because of its weak economic policies and environmental laws. However, there are several benefits that accrue to countries which adopt globalization strategy. For example, free trade policies attract potential investors from foreign countries thus creating job opportunities for people and increasing output which contribute to GDP growth (Hollings, 2012). Trade regulations such as tariffs, export duties, and taxes exercised on foreign investors may be beneficial to America. However, this source of revenue may be exercised through the application of VAT prescribed on consumer commodities.
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Protectionism policy focuses on enacting trade regulations such as import duties, quotas, and export taxes as a way of improving economic performance in America. The central argument of this policy is that opening American economy to the international market increases increased competition of products, technology, and job opportunities thus reducing success for local industries and access to employment for people in the United States. Proponents for protectionism argue that if President Obama approved the Defense Production Act, there would be a creation of millions of jobs in America. Protectionism may be a way of increasing employment and avoiding a nation from experiencing excessive budget deficit (associated press, 2012). This argument ignores the benefits benefit that accrues to a country by opening an economy because foreign investors create job opportunities in the country. Taxes and tariffs would result in a decline for both America’s export and attainability of imported commodities because of increased prices that would result in inflation.
Protectionism and free trade have both positive and adverse effects on economic growth in the United States. However, free trade appears to be beneficial to economic growth in America and other countries that engage in trade openness. Free trade calls for a need of reducing trade regulations that would result in an increased level of prices of products thus increasing the ability of a nation to compete in international markets. Encouraging globalization by reducing tax rates and adopting other policies such as VAT reduces prices of exports thus increasing the viability of domestically produced commodities in the international markets. For example, reducing corporate Tax by 35% and increasing the level of VAT by 6% reduces the price for exports by 29% making them competitive in international markets thus reducing America’s trade deficit (Hollings, 2012). Successful globalization requires involved nations to emphasize on understanding the adverse effects of globalization such as cybercrimes thus coming up with an alternative for avoiding these threats.
References
Associated Press (2012). Financial Crisis: Seeds of Dystopian Future. Retrieved from: https://www.newsday.com/business/financial-crisis-seeds-of-dystopian-future-1.3444439
Hollings F., (2012). Why America Slept. Retrieved from: https://www.huffingtonpost.com/sen-ernest-frederick-hollings/why-america-slept_1_b_1200456.html
Krueger, A. O. (2012). Free trade agreements as protectionist devices: Rules of origin. In Trade, Theory and Econometrics (pp. 113-124). Routledge.
