Home > Trade > Free Trade – does it really benefit everyone?

Free Trade – does it really benefit everyone?

Most economics courses discuss positive and normative questions although the latter seems to attract less attention. Normative questions refer to value judgements on points of policy which consider real-world applications – social and political points of view.  Foreign Policy magazine had a piece on the theory of comparative advantage and gains from trade.  Although in simple terms both countries should be better off after specialization and trade the economic theory fails to address the redistribution required to generate the improvement in living standards. Workers lose their jobs when production is moved Free tradeoverseas or domestic producers find that their products are undercut by foreign competition.  The loss of jobs is indicative of a growing economy but there is the costs retraining and integrating workers back into the work force.

The majority of textbooks argue that the benefits from free trade outweigh the costs but those countries that lose out rarely get compensated. However the US have recognized the cost of free trade and its impact of the about force. They have established the Trade Adjustment Assistance programme to provide funds for workers who have lost their jobs due to international trade. This money is used for retraining purposes and trying to find gainful employment for those who have lost their jobs.

In the recent debates on both the Republican and Democrat side there has been the criticism of the NAFTA – North America Free Trade Agreement – and the potential new deals with the EU, Asia and TPPA. This has gained traction as many of the voting population have been impacted negatively by free trade deals and globalization.

Free Trade might reduce inequality between countries but it increases inequality within countries. The big losers from globalisation have been the working and middle classes and as they have become more disillusioned it is Trump and Sanders that they have gravitated to for answers. However it is the policies of these candidates that economists are grappling with.

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Categories: Trade
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