As Trump is allegedly trying to force a high-percentage tarrif on the Chinese imports, and Bernie Sanders to oppose the former trade agreements with the Asia-Pacifics, international trade has became one of the most heated topics on the presidential political debate. Everything has its own good and bad, free trade is no exception.
On the brightside, in a perfectly competitive market, free trade maximizes economic efficiency, promotes economic welwares of both consumers and suppliers. While on the other hand, a country with a relatively cheap labor force, for example Trump’s favorite— Mexico, could substantially “steal” jobs from a coutry with a relatively higher cost of production.
Now before we analyze Trump’s argument, let’s take a look back at the benefits of free trade that are already widely accepted by the economists. First and foremost, total surplus of an economy increases regardless of the international prices of goods. (Producer surplus is the measure of the difference between the amount of currency that a supplier receives and the minimum amount of currency that the person is willing to sell. Consumer surplus is the measure of the difference between the the price of the good and the maximum amount of money that the person would be willing to buy). Since, when the world price is below the domestic price, and the world price becomes the new equiliburium price when international trade is promoted, the surplus domestic suppliers receive decreases by the exact amount of B as the consumer surplus increases by the amount of B and D, and the total surplus increases by the amount of D. On the other hand, when the world price is above the domestic price, the consumer surplus decr...
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... price of steel from Mexico is lower, would it be a problem for Americans to buy from Mexico? Of course, it is most certainly a loss to the American steel workers , but the U.S steel consumers would also benifit. If you look back on the graphs, you would find the situation quite similar to that of any free trade: The benefit from buying at a lower price would almost always outweigh the loss of the domestic steel suppliers. The mexico’s subsidy might sound bad to the American workers, but as the U.S gain more from the trade, the taxpayers of Mexico are the ones who share the tax burden. Thus the U.S can actually benefit from Mexico’s protective policies.
In conclusion, after thoroughly examining each and every possible argument, the free-trade is far from killing the U.S industry, and any form of political intervention could almost only happen with a greater cost.
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