The U.S. is involved in several trade policies with other nations that boosts its exports and improves the nation’s ec0nomy. This paper will identify and discuss the trade policies between the U.S. and foreign nations including the factors of production and their mobility. The paper will also differentiate between absolute advantage trade theories and competitive advantage theories giving examples. Lastly, the paper will discuss issues with ratification concerning the Trans-Atlantic Trade Partnership (TTP).
North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement was a trade agreement that was made between the USA, Canada, and Mexico that created a trilateral trade bloc in the region. The trade bloc is among the world’s largest in terms of Gross Domestic Product (GDP).
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The Transatlantic Trade and Investment Partnership (TTIP)
TTIP is a free trade agreement that was agreed between the A.U and the U.S. In 2018, U.S. produced $20.5 trillion while the U.N produced $22 trillion during the trade ( Quan, 2004). The duo accounts for almost a third of the global GDP which amounts up to $135.2 trillion
The Dominican Republic-Central America FTA (CAFTA -DR)
The Dominican Republic-Central America FTA is a trade agreement that allows for free trade between the USA and a number of growing economies such as the Honduras, Nicaragua, El Salvador, Costa Rica and Guatemala ( Quan, 2004). The policy further promotes stronger investment and trade ties, stability, and prosperity along the Southern border and throughout the region.
USA-Canada Free Trade Agreement
This trade agreement was negotiated by the USA and Canada. Consequently, it phased out omost trade restrictions that had been existing between both nations leading to substantial increase in cross-border stage between the two nations.
South Korea and US Free Trade Agreement
This trade policy was established to strengthen the ties between the Republic of Korea and the U.S.A in 2012 ( Quan, 2004). The trade policy resulted in trade that amounted to approximately $154.8 billion in 2017 . This made Korea the 6 th largest trading partner for goods with the U.S.
Factors of Production
Land which comprises of the real estate.
Labor which comprises of outsourcing activities.
Capital which comprises of large financial investments both in the US and in foreign countries.
Mobility
The mobility of the factors of production is good for the U.S.A trade especially foreign direct investments that have been growing rapidly over the last decade ( Quan, 2004). The improved mobility in foreign direct investments stimulates the growth of other sectors as well hence improving the trade entirely.
Differences between Absolute Advantage and Comparative Advantage Trade Theories
Absolute advantage trade theories are those which emphasize on the essence of specialization and the division of labor in the production process. Adam Smith developed this theory in his book “The Wealth of Nations”. The assumes that trade is often carried out between both counties, that there are only two goods that are traded, and there is free trade between both countries and labor is the only cost of production..
Competitive trade theories, on the other hand, argues that a country boosts its economic growth mainly through focusing on its most competitive advantage industry. This can be seen as Portugal has the most favorable conditions of producing cheap while the England could manufacture cheap cloth (Fontagné, Gourdon & Jean, 2013). Consequently, the trade ties between the two nations can be most competitive and profitable when the two nations trade for each other’s goods in a free market. Examples include Porter’s theory of competitive advantage of nations and the New Trade theory.
The Trans-Pacific Partnership (TPP)
The TTP trade agreement allowed for free trade between several countries including Chile, Canada, Malaysia, New Zealand, Brunei, Japan, Singapore, Peru, and the USA. The trade was signed in 2016 but its ratification was not done as requires hence prohibiting it from taking place (Fontagné, Gourdon & Jean, 2013). The lack of ratification of the trade partnership was mainly due to the U.S. withdrawing its signature from the agreement hence making it to halt.
Among the advantages that the trade brings is a boost in the trade between the U.S. and the nations and this would increase the economy of the U.S. another advantage of the trade agreement is the creation of more jobs among the countries with membership. The U.S. would also increase it exports by $305 billion every year by 2025. The disadvantage is the trade, however, is that most people who would benefit from the trade earn more than $88,000 yearly ( Fontagné, Gourdon, & Jean, 2013). This would lead to income inequality among high-wage countries. This promotes the flow of cheaper goods mostly from low-income countries hence making the trade imbalance as well. Congress should not ratify the program since the draw backs seem to affect other nations either directly or indirectly.
Regional trading groups seem to favor most organizations as it boosts trade and exports between the involved nations. Additionally, this creates more jobs and improves the economies of the hosting nations (Fontagné, Gourdon & Jean, 2013). Trade groups provide a more conducive environment for trade between international organizations through reduced tariffs and incentives hence improving production.
Conclusion
The trade agreements between the U.S. and other nations as it boosts tha nations exports and also improves the creation of jobs in the U.S. Among the factors of production in the that are conducted in the U.S. include land which constitutes of real estate investments from other nations and capital which comprises of direct foreign investments. The ratification of the TTP should not be done by Congress since the trade agreement does not favor other nations involved as it leads to income inequality.
References
Fontagné, L., Gourdon, J., & Jean, S. (2013). Transatlantic trade: whither partnership, which economic consequences?. CEPII Policy Brief, 1(10).
Quan, X. U. (2004). A Legal Analysis of the USA Foreign Trade Law in Recent Years. Journal of Swupl, (3), 18.
