By: Bird Millon
Should America Protect Industries from Foreign Competition Many politicians oppose free international trade, trade without any restrictions, for a couple of reasons. From their point of view it would affect the United States in a couple of ways: 1. Many USA workers would lose their jobs because factories would be moved to the country with whom the U.S. has a Free Trade Agreement, and where working force is much cheaper. 2. Importing foreign goods and services without tariff into the United States makes it harder for domestic industries to compete with lower prices and better quality of foreign competition. 3. Some politicians feel that it is not the right decision to have open trade with countries where the workforce is forced to work and where prisoners are used as workers. Because of these reasons, politicians who oppose Free Trade, feel that the U.S. should have some kind of restrictions, such as protective tariffs, import quotas, non tariff barriers, and/or export subsidies. However, some politicians and economists feel differently. They say that if some country would raise its barriers in order to reduce imports and stimulate production, the country whose exports suffer may raise its barriers, too. This would cause a trade war. The trade war would effect every nation in lower output, income, and employment; example is the Smooth-Hawley Tariff Act of 1930. The United States is enjoying its second longest period of sustained economic expansion with real GDP growth averaging over 2.8% during the years 1992-96 and accelerating to 3.9% in 1997-98. The United States strong economic performance is due in part by trade and investment liberalization resulting from the Uruguay Agreement and the North America Free Trade Agreement (NAFTA). The openness and freedom of the economy has contributed to improving the competitiveness of the U.S. producers, creating more and better paid jobs, which in turn raised labor standards and reduced poverty. At the end of 1998 the unemployment rate fell to 4.5% and consumer price inflation to 1.6%, which is the lowest level since the 1960. This outstanding macroeconomic performance has been greatly followed by a large and growing current account deficit, which in 1998 reached a record level of $223 billion (2.7% of GDP). The trade deficit has enabled the U.S. economy to keep up with its strong rate of growth. Open economy brings imports, which are often at a lower price, and they help to satisfy domestic demand. They have also contributed to lower domestic prices and wider choice for the U.S. consumers. The U.S. producers have benefited from lower costs and wider choice of input, too. It increased their competitiveness, resulting in more jobs and higher wages. Imports have helped with inflation pressure that might otherwise have emerged as a result of the very strong growth of domestic demand and low unemployment rate, thereby supporting low market interest rates. An additional source of funds for domestic investment flow from abroad. Foreign investors made up the shortfall of national savings relative to domestic investment. Foreign investment has enabled the U.S. economy to grow faster then would have been the case if it were relied solely on domestic saving. Foreign investments have also contributed to the recent market improvement in labor productivity. As a result, average living standards in the United States, as measured by per capita GNP, are at $28,740, among the highest in the world. Countries that remain closed, remain poorer, underdeveloped, cut off from the world of rights and freedom. This poverty, not trade, is the main cause of bad working conditions, and it must be met by expanding commerce, not imposing sanctions. If the U.S. wants to help those nations where working conditions are poor, the U.S. should open more to them. A perfect example is China. Some politicians, as I said in the beginning, oppose trade with China because of workers conditions, not realizing that it is due to keeping them closed. When the federal government closes U.S. markets to countries with governments that deny their citizens certain civil rights, it robs those citizens of one more freedom and closes the market that is the best instrument for creating wealth and preserving freedom. In conclusion I would like to say that the U.S. economy has had outstanding growth and productivity performance during the period of 30 years, accompanied by the lowest levels of unemployment and inflation. This suggests that trade and investment liberalization support strong economic performance. Any major upsurge could cause smaller profit expectation and reduce the attractiveness of the United States to foreign investors, thereby possibly prompting a major correction of the U.S. stock market. Such a correction could reduce consumption – possibly reversing the recent decline in personal saving-and imports, thus perhaps jeopardizing the still fragile recovery of countries most effected by the financial crisis, which erupted in 1997.