Trade Policy

Introduction

An FTA (Free Trade Agreement) refers to a deal between at least two countries for reducing obstacles to exports and imports between them. Under free trade policies (FTP), services and products may be purchased and sold over international borders without any (or, at least, with scant) governmental tariffs, subsidies, prohibitions, or quotas for hampering their exchange (Amadeo, 2021). The free trade principle is contrary to economic isolationism or tradeprotectionism. In the contemporary era, FTP is typically implemented via an official, mutual agreement between involved countries. But an FTP might merely be a lack of restrictions to trade. Governments do not have to take any particular action to support free trade a hands-off stand that is termed as trade liberalization or laissez-fairetrade (Barone, 2020). Governments that have put FTPs or such agreements into practice dont always have to give up total control over exports and imports or do away with every protectionist policy. In the contemporary global trade domain, a small number of FTAslead to totally free trade.

The NAFTA (North American Free Trade Agreement) is one of the examples of FTAs. Although it was concluded, owing to its replacement (the updated USMCA (U.S.-Mexico-Canada Agreement)) on July 1, 2020, it continues to be of interest when discussing the subject of FTAs as it represented the worlds biggest free trade area created in the year 1994 (Alvarez, 1996). This treaty between the three nations mentioned above did away with the majority of tariffs between these nations. Before NAFTA, never had any developed countries entered into any trade pact with an emergent market nation.Through this Agreement, the three nations agreed upon eliminating obstacles to trade between them.By eliminating tariffs, NAFTA gave rise to more investment opportunities; hence, this paper considers NAFTA as its referral FTA.

FTA Benefits to the trade

Global trade constitutes the contemporary basis of affluence. FTPs have opened up novel areas to invention and competition. Free trade has resulted in improved jobs, greater investment, and fresh market areas. Besides services and products, it also disseminates beliefs and values. As international trade is dependent on traders sticking to agreements, firms and nations are more answerable and, thus, more stable now.

Increased Production

Trade aims at providing access to a larger number and diversity of services and products. The Heritage Foundation claims that free trade promotes competition, encouraging organizations to be creative and develop improved products while maintaining superior quality and low prices (Froning, 2000). It enables firms and regions to concentrate on services or products that they are best at producing. International trade helps companies acquire a larger market share, lower costs, and enhance productivity, thereby resulting in higher production rates.

Economic Development

In free trade, risk-taking is rewarded in the form of greater market share and sales. When America and other large nations make the most of it, they witness economic growth, which overflows into economically unstable, poverty-ridden, small nations open to trade. The Heritage Foundation states that poorer nations trade for capital profit because their private sector payoffs are more instantaneous (Froning, 2000).

International Cooperation

Free trade coerces organizations into standing by the rule of law. All WTO member nations are required to honor every agreement and follow every WTO law. Nations failing to enforce agreements end up losing business, with investors investing elsewhere. For a nation to benefit from free trade, it has to stick to the rules. Further, the Heritage Foundation claims free-trade transmits values and ideas (Froning, 2000) that facilitate the creation of more stable and robust governments within smaller nations.

Resource Allocation

Free trade enhances global resource allotment. If individuals or nations can trade for necessary services/ products, they may concentrate on producing those...

Bringing down trade barriers (which include tariffs or customs duty and measures like import quotas for selective restriction of import quantity or bans) constitutes one among the most overt ways of facilitating trade equality. Occasionally, other challenges like exchange rate and red tape policies have been deliberated on as well. FTAs normally support services/ products trade and investments by creating a better business environment for partners (Kawai and Wignajara 2008).

Risks in analysis trade liberalization

The foremost and potentially most salient risk factor for the analysis of this subject is my own political and personal beliefs on trade liberalizations contribution to the promotion of economic progress. This essentially constitutes a bias potentially impacting the papers overall opinion. But it was mitigated through a thorough literature review citing various authorities on the subject.

Furthermore, several intervening variables exist between FTAs and economic growth, leaving a broad scope for rational, knowledgeable analysts to disagree concerning impact. Commonly, implementation occurs over 10 to 25 years some among the most hotly debated provisions are typically left off until the very end such that so much would have transpired within the wider social and economic environment of the nation before completion of the FTA (Stevens et al., 2015). Economic growth and trade are interlinked, though not synonymous; hence, positive trade impacts might or might not directly affect growth.

Akin to all other policy reforms, the implementation of an FTA leads to the creation of losers and winners, in addition to producing impacts in several areas (which include potential diversifcation and trade expansion, job creation within certain industries, and concurrent job loss in others, technology transfer, and investment) (Stevens et al., 2015). Consequently, analysts may reasonably hold different views concerning the relative importance of such differential impacts and external factors role.

References

Abbott, F. M.…