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A CASE FOR FREE TRADE

KRISTIN RICHARDSON
15
TH
JULY 2014
ECN171701
MS. CATHERINE RUST


I. EXPLANATION OF TOPIC
This paper explains the relationship and opposition between free trade and
protectionism. The macroeconomic outlook of both trade policies, as well as the authors
position on both, are discussed.
FREE TRADE: WHAT IS IT?
Free trade is a policy where government in international markets do not restrict the
import or export of goods and services. This means that any goods or services are traded
without taxes or other trade barriers (licenses, quotas, subsidies, etc.). Investopedia explains
that Free trade is a win-win proposition because it enables nations to focus on their core
competitive advantage(s) (2014). This allows large economic output and encourages income
growth for citizens. There are many free trade agreements throughout the world that help keep
free trade consistent. Free trade is exemplified by the North American Free Trade Agreement
(NAFTA) and the World Trade Organization (WTO).
FREE TRADE VS. PROTECTIONISM
The opposing policy of free trade is protectionism. Protectionism is a group of policies
that try and restrain international trade. These policies are placed with the intent of protecting
local businesses and jobs from foreign competition (Investopedia, 2014). Investopedia explains
that over the long term, protectionism often hurts people it is intended to protect, promoting
free trade (2014).

II. ASSUMPTIONS
Below are two very different outlooks of two credible, well known economists, on
the policy of free trade.
ALAN S. BLINDER: A FIGHT FOR FREE TRADE
Alan S. Blinder is an American economist who has both an academic and political career.
He was the president of the Eastern Economic Association, vice president of the American
Economic Association, a member of the American Philosophical Society, and is a current
member of the board of the Council on Foreign Relations. Blinder has also served as the Deputy
Assistant Director on President Bill Clintons Council of Economic Advisers and was the Vice
Chairman of the Board of Governors of the Federal Reserve System. Blinder is well-known for
his economic book called Economics: Principles and Policy.
Alan S. Blinder fully supports and promotes free trade among nations, as the best trade
policy. Many are skeptical about free trade as they are afraid it is hard to defend higher
country wages. Blinder explains that in modern economies, there are many different industries
and occupations. With this in mind, a countrys wage level depends on the productivity of its
labor force, not on its trade policy (in this case, free trade). So as countries are practicing free
trade, employees will not lose their wage level.
Blinder talks about how the U.S. did much better economically than Europe for the past
two centuries. This is because the U.S. had free movement of goods and services while Europe
practiced protectionism. Blinder puts free trade in perspective of the people: Imagine how
much your personal standard of living would suffer if you were not allowed to buy any goods or

services that originated outside your home state (Blinder, 2008). This applies just as such to
each country. Blinder quotes Adam Smith, a pioneer of political economy:
If a foreign country can supply us with a commodity cheaper than we ourselves can
make it, better buy it of them with some part of the produce of our own industry, employed in a
way in which we have some advantage. Adam Smith, 1776
IAN FLETCHER: FREE TRADE WONT WORK
Ian Fletcher is an American economist who does not support free trade. He is the former
Senior Economist of the Coalition for a Prosperous America and a Research Fellow at the U.S.
Business and Industry Council. Fletcher has written books, articles, and reviews. He is well
known for his book Free Trade Doesnt Work and his articles written in the Huffington Post.
Fletcher is against free trade and believes it does not benefit any country that supports
it. He explains how comparative advantage is widely misunderstood and does not demonstrate
the universal superiority of the free trade policy (Fletcher, 2011). Although comparative
advantage tells us our best move today, it does not tell us how to raise productivities tomorrow
(Fletcher, 2010). The essence of economic growth is how an economy can transform and
become more productive in the future. Fletcher explains that trade is not sustainable. When a
nation imports so much that it then runs a trade deficit, the nation is either selling assets to
foreign nations or going into debt to them (Fletcher, 2010).
Fletcher feels that tariffs on foreign goods and services at least force other nations to
play fair in the trading world. He gives an example from 1971, when President Nixon set tariffs
against Japan, Germany and other countries that refused to let their currencies strengthen.

These tariffs persuaded the nations to rebalance the world economy cooperatively (Fletcher,
2010).
Asking what industries a nation has comparative advantage in helps illuminate what
kind of economy it has. And insofar as the theorys assumptions do hold to some extent, some of
the time, it can give us some valid policy recommendations. Fairly open trade, most of the time,
is a good thing. But the theory was never intended to be by its own inventor, and its innate logic
will not support its being, a blank check that justifies 100 percent free trade with 100 percent of
the world 100 percent of the time. It only justifies free trade insofar as its assumptions hold true,
and they largely do not. Ian Fletcher, 2010
III. POSITION AND ANALYSIS
MY POSITION
I support free trade and all the benefits that come with it. Before researching more into
this topic, I had some knowledge on Free Trade and had the same supportive position. Trade
can exist and does exist without restrictions.
USA: FREE TRADE WORKS
The Office of the United States Trade Representative (USTR) reports that the U.S. is the
worlds largest trading nation, with exports of goods and services reaching $2.3 trillion in 2013.
Not only has free trade allowed the U.S. to become the worlds largest economy and the largest
exporter and importer of goods, but it supports over 11 million jobs currently. Free trade
benefits the nation and also benefits families and businesses. In the export sector of the U.S.,

higher paying jobs are supported. Investment is encouraged and there is an ever expanding
variety of products for purchase.
The manufacturing industry is a perfect example on how free trade benefits the United
States. The manufacturing industry is based on the fabrication, processing, and preparation of
products from raw materials. An estimate of 25 percent of all manufacturing jobs are currently
supported by exports (USTR, 2013). These jobs pay 13-18 percent more than the U.S. national
average.
OUTSOURCING
I personally feel that outsourcing is inevitable and will happen regardless of the trade
policy. Free trade can cause jobs to move offshore, while protectionism just delays the
movement offshore. If a vulnerable industry can gain economic growth by moving offshore,
why wouldnt they fight for that? In 2004, Clyde Prestowitz wrote in Financial Times: The Bush
administration's emergency tariffs on steel prevent the bankruptcy of several steel companies
and the further loss of American steel jobs. They did, however, hurt US carmakers that lost
sales and jobs because they had to pay more for steel than the foreign producers of the
imported cars US consumers were snapping up. That is a great example of how jobs were
affected regardless of the trade policy in practice.
I honestly just dont see a strong relationship between free trade and outsourcing. Sure,
companies are able to outsource easily with free trade, but regardless of the trade policy,
outsourcing is still inevitable for vulnerable industries.

IV. INTERPRETATION
THE BIG PICTURE
Macroeconomics examines economy-wide movements and trends. Free trade focuses
on the international trade policy for each country and how each interacts with one another.
Free trade and Macroeconomics fall hand in hand as they both are economy-wide.
I dont believe there were any gaps during my research. I had more than enough
sufficient data available through journals, newspaper articles, government websites and
financial organizations. Google Scholar and the LRC through Chesapeake College helped with
finding credible, accurate sources.
V. VOICE
A CASE FOR FREE TRADE
Free trade is not only beneficial nationally but is important to support globally.
Supporting free trade allows nations to avoid high prices, limited goods, restricted markets, and
global tension. Without tariffs and other barriers, foreign goods are not limited, allowing
cheaper domestic products. This allows for an open market, a large variety of goods, and low
prices. To avoid global tension, free trade doesnt promote restrictions. This allows nations to
work with their comparative advantage to benefit themselves and other nations.
As a world leader, I would support free trade and promote it throughout all nations. It is
important to promote competition among countries, to help encourage them to develop better,
cheaper goods and services. Over time, output and productivity would increase which would
allow the economy to rise on a national and global scale.

Adam Smith wrote:
Give me that which I want, and you shall have this which you want, is the meaning of
every such offer; and it is in this manner that we obtain from one another the far greater part of
those good offices which we stand in need of. Adam Smith, The Wealth of Nations: An
Inquiry into the Nature & Causes of the Wealth of Nations





















SOURCES

Altman, M. (2000). Free trade and protectionism. Encyclopedia of Political Economy, Phillip
O'Hara, ed., Routledge Publishing, 372-375.
Blinder, A. (2012). Microeconomics: Principles and Policy (12th ed.) (W. Baumol, Comp.). Mason,
OH: South-Wester, Cengage Learning.
Blinder, A. S. (2008). Free Trade. Retrieved July 14, 2014, from Library Economics Liberty
website: http://www.econlib.org/library/Enc/FreeTrade.html
Ian Fletcher, Dubious assumptions of the theory of comparative advantage, real-world
economics review, issue no. 55, 17 December 2010, pp 94-105,
http://www.paecon.net/PAEReview/issue55/Fletcher55.pdf
Fletcher, I. (2010, October 25). Six Reasons for U.S. to Abandon Free-Trade. Retrieved July 14,
2014, from http://www.bloomberg.com/news/2010-10-26/six-reasons-for-u-s-to-drop-
free-trade-myth-commentary-by-ian-fletcher.html
Free Trade. (2014). Retrieved July 14, 2014, from http://www.investopedia.com/terms/f/free-
trade.asp
Protectionism. (n.d.). Retrieved July 14, 2014, from
http://www.investopedia.com/terms/p/protectionism.asp
USTR. (2013). Benefits of T rade. Retrieved July 14, 2014, from http://www.ustr.gov/about-
us/benefits-trade
USTR. (2013). North American Free Trade Agreement (NAFTA). Retrieved July 14, 2014, from
http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-
trade-agreement-nafta