Economics / Unit 11: International Trade and the Global Economy
11.4 Debates over Trade and Trade Agreements
Notes
Economists widely agree that trade raises total output, but people debate how to balance its benefits and costs.
- Arguments made for free trade: lower prices and more choices for consumers, larger markets for exporters, more competition and innovation, and closer ties between nations.
- Arguments made for some protection: saving jobs in industries hurt by imports, protecting infant industries until they can compete, national security (keeping key industries at home), and responding to unfair practices such as foreign subsidies or dumping (selling abroad below cost).
- Many economists argue that helping displaced workers with retraining is less costly than trade barriers; others argue some protection is needed for strategic industries.
| Agreement or group | Key facts |
|---|---|
| GATT (1947) | reduced tariffs among many nations after World War II |
| World Trade Organization (1995) | replaced GATT; sets trade rules and settles disputes |
| NAFTA (1994) | U.S., Canada and Mexico; replaced by USMCA in 2020 |
| European Union | a single market among member countries; many use the euro |
| ASEAN | trade cooperation among Southeast Asian nations |
- A free-trade area removes trade barriers among members; a customs union also sets common tariffs on outsiders.
Practice
Which argument for trade barriers says a new domestic industry needs protection until it can compete with established foreign firms?
Infant industries are new and may need time to grow.
Which organization, founded in 1995, sets rules for international trade and settles trade disputes?
The WTO replaced GATT in 1995.
A foreign company sells televisions in the U.S. at prices below its cost of production to drive out competitors. This is called:
Dumping is selling exports below cost or below the home-market price.
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