Trade has been a controversial economic subject for a very long period. During different time periods, it has been discouraged, and classical economists suggested closed economy. However, as the economies matured, so did the economic notions. Different theories and models were developed to advocate trade and introduce gains associated with it. One such effort was a Ricardian model, which was based on various advantages, such as competitiveness and absolutes. His model suggested that with trade, most benefits are associated. As his model was not mature to consider other factors, such as easy mobility of capital and universality of technology, it crumbled eventually. However, what remained was the perception regarding trade that it had enormous benefits.
Statistics reveal that trade may cause challenges for the economy, as the United States is witnessing. For instance, the trade deficit, of United States, with its two major trading partners, Mexico and China, is huge. Since 1993, the trade deficit, imports from Mexico to the US grew five times, whereas the exports to Mexico grew three and half-times. As per statistics of 2016, the trade deficit was around $55.6 billion, whereas the size of trade was $579.7. Similarly, since China signed WTO, trade between two countries have increased and so does the trade deficit, as no longer US can exact tariff at will. According to the statistics, in the fiscal year 2016, the US trade deficit was around $347 billion (The Economist).
From the systematic and comprehensive study of the subject, I have concluded that there are some advantages and disadvantages of trade. However, it is apparent that the structure of the trade must be balanced, and some policies must be implemented to balance the trade. The article also suggests that it is more of an accounting issue, rather than economic.
ADVANTAGES
- As the competition increases, because of the flooding of markets with Mexican and Chinese products, prices of products and services come down. It dwindles in prices, of goods and services, increase real income, which benefits the economy, as more income is at disposal to buy goods and services. The overall increase in consumption, due to an increase in real income, increases inflation, which acts as an incentive for industries.
- The other advantage is innovation. The increased pressure on corporate firms and dwindling of prices (reduction in profits) compel firms to adopt an innovation. This aids in the better use of limited resources, which benefits the economy in the long run.
- As per one theory, the deficit is financed by the country, with a trade It is evident from the financing by China, in the form of lending, at very low-interest-rates (Constable).
DISADVANTAGES
- In case of trade with China and Mexico, the greatest disadvantage is not trade itself, but rather the de-industrialization because of the trade with Mexico and China. For instance, because of various factors, such as labor-intensive economies of China/Mexico and inexpensive labor because of it, many firms have moved their operations to China and Mexico. It has caused unemployment in the United States and accumulation of wealth to top 1%. Therefore, trade has affected the United States
- Another reason is that the United States has lost its Industrial competitive edge because of transfer of technology due to the shift of operations.
IS IT RIGHT OR WRONG DECISION?
It is truly essential to address the contradictions in this trade agreement, and it must not only be seen through the prism of trade/economics but as an accounting challenge, as the preferred article has identified it. A fair trade will benefit American economy and allow it to evolve, as it has in recent decades. However, an extreme policy, regarding trade, will be detrimental
Work Cited
Constable, Simon. “Mr. Trump, Here’s Why Trade Deficits Are Good.” Forbes. Forbes, 27 February 2017. Web. 24 October 2017. https://www.forbes.com/sites/simonconstable/2017/02/27/mr-trump-heres-why-trade-deficits-are-good/#9ccebff2b962.
The Economist. “Trade, at What Price?.” The Economist. The Economist, 2 April 2016. Web. 24 October 2017. https://www.economist.com/news/united-states/21695855-americas-economy-benefits-hugely-trade-its-costs-have-been-amplified-policy.
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