Free trade can be described as the trading of resources among countries in which no government restrictions exist. There are many costs as well as benefits of free trade one of which is comparative advantage. When nations have different opportunity costs for producing products, trade will benefit both nations. Because of trade, many nations are able to increase production of products which results in lower prices for goods in other countries. Trade allows for more of a variety among products as well as increased innovation. Free trade also promotes faster growth of the economy by increasing the production of so many goods and services. Because trade requires specialization, it increases the greatest level of output around the world. In the long run, free trade has the potential to increase living standards around the globe by helping to lower prices. However, with its benefits, free trade does not exist without several costs which include economic inequality among nations where the income gap is already quite large, the outsourcing of jobs, and increased power for the biggest corporations which in turn could put many smaller companies out of business. One of the biggest concerns about free trade among society is that outsourcing jobs to other countries will result in hundreds or thousands of people losing their jobs and could potentially devastate our society economically.
Protectionism describes the restriction of trade between nations in the form of an economic policy. Protectionism involves methods such as quotas or tariffs. Many people believe in protectionism and therefore believe that there needs to be restrictions of trade in order to protect jobs in our own country. Those who follow protectionism believe that since many countries will work for much lower wages, big corporations will begin to outsource majority of their jobs which will result in a drastic increase in terms of the unemployment rate. However, protectionism carries many costs such as higher taxes on imports and limits of goods and services allowed into the country regardless of the demand of society.
In terms of the trade deficit, as the deficit increases in size, the value of the United States dollar will weaken and will cause an increase in interest rates from which United States borrowers will surely suffer from. As time goes on and the deficit grows, the economy continues to weaken based on the fact that consumers are purchasing goods from other countries at the unfortunate expense of our own country and its jobs. Such deficits ultimately deter our growth from an economic standpoint. Every dollar that is spent on imports needs to be equal to the amount in exports, otherwise demand for our own goods will decrease along with the employment of our own citizens therefore transporting employees into areas of lower productivity.
