In the 1870s and 1970s, the united states were self-sufficient in the use of raw materials to produce goods and services such as clothes and steel. The U.S relied on its raw material in production and many immigrants moved to the U.S and offered cheap labor for firms, leading to higher profits (Peng, 2011).
Later other countries such as China, Japan, and India began producing at low costs. With less restrictive employment regulations, these countries operated with low wages and longer hours. As a result, it has been cheaper to produce goods in foreign lands and export them to the United States than to produce in the U.S and export them to other countries abroad. According to U.S census department, Japan export is near twice those of US. Consumers in the U.S have benefited from increased low priced goods (Lemar, 2015). However, foreign consumers have been negatively affected by the rise in prices of commodities due to increased demand for the commodities in the U.S.
The shift in comparative advantage from the U.S to other countries has caused manufacturing companies in the U.S to move their operation to other lands. The result has been increased unemployment rate in the U.S. the foreign workers have benefited from the shift of the operation of the domestic firms to other lands due to competitive wages (Peng, 2011). The inflow of companies to the foreign lands implies that firms would have to offer competitive wages to acquire labor services. the increased importation of goods is dictated by production cost analysis. The cost of producing coffee beans in Brazil is lower compared to the U.S. Therefore, the U.S prefer to import packed and ready for consumption coffee beans rather than attempt to develop facilities to produce coffee (Peng, 2011).
Advantages and Disadvantages of tariff and ban
Import tariff help to protect domestic firms by preventing entry of low-cost imports in the domestic market (Kraus, 2000). It helps the output of local producers to be relatively competitive compared to imports. However, it raises the cost of goods for domestic consumers in the form of costlier imports. It can also result in a decrease in quality of products as firm cuts their cost of production to count for the implemented tariffs. It can also result in trade wars between nations. Other countries may retaliate against high import tariffs by imposing similar tariffs or ban. A ban on import would also protect the local firms by allowing their products to become competitive. However, it can result in the rise of the black market.
Benefits and Criticism of Trade Agreements
Trade agreements help to boost trade between countries. The North American Free Americas Agreement (NAFTA) initiated in 1994 helped in eliminating trade tariffs on commodities traded between U.S, Canada and Mexico. As a result, the trade between the three state increase to $1.14 trillion in 2015 (Amadeo, 2018). Trade agreement also increase economic growth of the US and other countries involved. The Increased trade created a by NAFTA resulted to growth in economic output. The agreement has boosted U.S growth by 0.5% annually with greater impact on agriculture, services and automatic sectors (Amadeo, 2018). Trade accords has resulted to reduced cost of imports. For instance, under the NAFTA U.S imported oil at low prices from Mexico. The trade agreements have resulted to increased foreign direct investment. For example, Under the NAFTA the foreign direct investment among the three countries more than in tripled. The U.S invested a total of $452 billion in both Mexico and Canada while the later invested 240.2 billion in U.S (Amadeo, 2018)
However, many criticized NAFTA because it caused a shift in production from the U.S to Mexico with the result being a loss of jobs, low wage competition and increased trade deficit. The agreement led to the loss of over 750,000 U.S jobs due to the move of manufactures to Mexico to access cheap labor. The greatest impact was on Automobile, textile and computer industry. Donald Trump opposed the deal arguing that it has transferred over 1400 jobs from America to Mexico (Gandel, 2016). The America trade balance rose from $1.7 billion surpluses 1993 to $54 billion in 2014. The increased level of unemployment has been one major reason individuals such as such Trump criticize the trade agreement
4. Benefit and challenges posed by the Trade agreements
American believe on well-paying Jobs and would not work for low wages. However, some countries such as Mexico have less strict regulations and workers can accept longer working hours and low wages. The result of the difference in culture has resulted in reduced employment in America as most firms move to other nations that can accept such low wages. The foreign citizen has benefited from increased employment opportunities. The foreign citizens also move freely to U.S due to the trade accords with the result being increased interaction that is beneficial for coexistence. However, it poses the challenges such as destruction of native cultures. The development brought about by the trade accords such as NAFTA can move into isolated areas leading to destruction of indigenous cultures. Local people may be moved land their resources depleted.
The understanding of the different cultures existing globally is important not only in the negotiation of trade agreements but also in the actual trade between firms and individuals of the different states. The knowledge of such cultural diversity help in the interaction and coexistence between the foreign citizen and locals. It is important for the U.S to understand that it no longer self-reliant as it was in the early 1870s and 1970s and trade agreement is important for prosperity. It cannot produce everything, and even if it does it will need the market to sell them. The U.S must also understand that in any agreement there are disadvantages and advantages. Therefore, the U.S should continue to pursue meaningful negotiation and partnership with other global nations to grow.
References
Amadeo, K. (2018, March 03). Why NAFTA's Six Advantages Outweigh Its Six Disadvantages. Retrieved from https://www.thebalance.com/nafta-pros-and-cons-3970481
Gandel, S. (2016, September 27). Donald Trump Says NAFTA Was the Worst Trade Deal the U.S. Ever Signed. Retrieved from http://fortune.com/2016/09/27/presidential-debate-nafta-agreement/
Kraus, C. (2000). Import tariffs as environmental policy instruments. Kluwer Academic
Lemar, S. (2015, November 18). Imports benefit U.S. workers and consumers. Retrieved from http://americastradepolicy.com/aafa-imports-benefit-the-u-s-worker-and-consumer/
Peng, M. W. (2011). Global business. Mason, OH: South-Western Cengage Learning.
