paper outline

November 18, 2016

The Controversy over International Trade in the age of Globalization:

Free Trade versus Trade Protectionism

I. Globalization

A. The definition of Globalization

1. Globalization is the exchange of goods and services by people and firms, and the idea between nations that are connected to each other through the financial market. It enables international economic activity such as the exchange of goods and services between nations.

II. Protectionism

A. The definition of Protectionism

1. Protectionism is the economic policy that seeks restraining trade between nations; it has a negative perspective on globalization.

B. Relationship with Globalization

1. Economic Aspect

i. It has a negative perspective on globalization because it can destroy local economies

2. Non-economic aspects

i. People can be confused about the cultural identity of their own nation.

C. Arguments for Protectionism

1. It can protect domestic products from foreign competitors because it can restraint the imports by increasing tariffs.

2. Consumers can buy cheaper domestic products.

3. Due to free trade, our environment can be ruined because of indiscriminate industrialization.

4. Globalization and Trade has impact on the domestic labor market, due to offshoring and immigration; it contributed to increasing unemployment rate in the domestic labor market.

i. Donald j. Trump and Bernie Sanders claimed that NAFTA is the worst trade policy among nation’s trade policies in the history of the United States, and it has killed the American jobs; also, it makes shrinking of jobs for the middle-class workers (Luhby, 2016).

5. Increasing import can lead to economic recession in the country.

6. Free trade is not fair trade for poor

i. Economically weaker nations can be exploited, and stronger nations would overpower the weaker nations

ii. According to Groot (2005), “Rich countries have been manipulating international trade rules to protect their own interests.”

III. Free Trade and its opposing opinions about protectionism

A. The definition of Free trade

1. Free trade is exchange between nations without tariff or restriction, and it has a positive perspective on globalization.

B. Relationship with Globalization

2. Globalization enables international economic activity such as exchange of goods and services between nations.

3. Economic Aspect

i. In the globalized world, people can go everywhere in the world because of the advancement of transportation. Thus, firms can trade intermediate goods, thus, they can get inputs much cheaper and easier.

4. Non-economic Aspects

i. Through migration, people can live wherever they want to live.

ii. Due to exchanging goods and services, people can interact and share their culture more than before.

C. Counterarguments for Protectionism

1. Economic Aspects

i. Due to the restraining of trade, the quality of goods would be worse.

· Protectionism can harm to domestic industries because due to restriction of trade, technology development can be trailing than other countries; it leads to poor quality of product and consumers would unsatisfied it (Singh, 2014).

ii. Customers also should buy low quality products because of the lack of opportunity to choose the better product.

iii. Customer eventually would be negatively affected by higher tariffs on imported goods.

· Example: Singh (2014) noted, “Due to protectionism policy, European consumers pay dearly for EC restrictions on food imports and heavy taxes for domestic farm subsidies. The consumers of America also suffered from the same double burden, paying six times the world price for sugar due to trade restrictions.” (p.236).

2. Environmental aspects

i. The environment would be better off due to free trade.

· According to Weber (2007), “free trade does not automatically harm the environment and can quite possibly reduce both pollution and the quantity of natural resources used in production.” (p.457).

ii. NAFTA pronounced that free trade has a positive impact on Greenhouse gas emission due to advanced technology.

D. FTAs (Free Trade Agreement)

1. NAFTA (North American Free Trade Agreement)’s economic effects.

i. NAFTA supports creating jobs that relates to trade.

· According to Shahabuddin (2003), “Negroponte said that for every additional billion dollars the U.S. exports, 25,000 jobs will be created. Dornbusch said that trade with Mexico during the past five year has created 150,000 jobs which would have not been otherwise possible. FORTUNE magazine estimated a net gain of 325,000 well-paying jobs by 1999 due to NAFTA.” (p.307).

2. CAFTA (Central American Free Trade Agreement)’s economic effects.

i. Since it supports reduction of tariffs, Central American countries can trade in effective way by CAFTA; and it contributes to globalization.

E. Positive effects of free trade

1. Free Trade increase productivity

i. Firms can improve productivity by using comparative advantages effectively

· Gallardo (2005) noted that according to the country’s comparative advantage, countries can produce goods depending on their intensiveness and abundance of resources. Especially, relatively poor countries can benefit by specializing of labor intensive goods because not only their productivity but also their employment growth can be developed by comparative advantages.

ii. In the past, China suffered from rice blast, so the millions of tons of rice were destroyed. They imported and used foreign research and development (R&D) to fight the disease, and it led to the increase of rice production in the country (Irwin, 2015).

2. Free trade promotes economic growth and it enhance the level of income per capita than protectionism.

i. Example: Abboushi, S. (2010) stated that “the average annual growth in real per capita income for 1963-1973 was 6.9 percent in the countries with strong free trade policy and 1.6 percent in the countries with strong restricted trade policy.”

3. Consumers can have the opportunity to choose goods and services in many options because of the greater diversity, also producers can use more diverse intermediate goods due to free trade.

i. According to Irwin, (1962), specialization, which is a one of gains from trade, enables people to have a much better standard of living; also they can enjoy a more variety of goods and services (p.29).

4. It affects the employment rate, due to specialized labor market, so more job seekers can get a job easier than before.

5. World Trade Organization(WTO) promotes and supports free international trade between nations.

References

Abboushi, S. (2010). Trade protectionism: Reasons and outcomes. Competitiveness Review, 20(5), 384-394.

Gallardo, Julio López. (2005). Comparative advantage, economic growth and free trade.

Groot, J. D. (2005, December 14). Free trade is not fair trade for the poor. The Age (Melbourne, Vic.), 0312-6307.

Irwin, D. A. (2015). Free Trade Under Fire (Fourth ed.). Princeton, NJ: Princeton University Press.

Luhby, T. (2016, March 9). Is trade really killing middle class jobs? CNNmoney, Retrieved November 18, 2016.

Shahabuddin, S. (2003). NAFTA: Does it have any effect on the U.S.A. economy? International Journal of Management, 20(3), 306-316.

Singh, I. (2014). Impact of trade protectionism on world economic growth. International Journal of Education and Management Studies, 4(3), 235-237.

Weber, C. E. (2007). Gains from trade for nonmaterialists, environmentalists, and the overworked. Journal of Economic Education, 38(4), 452-460.