Protectionism and North American Free Trade Agreement - Assignment Example

Short-term protection helps the industry to develop its comparative advantage. Once these comparative advantages are fully explored and developed within a reasonable time; they should be allowed to trade freely in the international market. Initial protection provided during the infant stage for a reasonable period helps the industry to grow and reach its full efficiency.
Answer 2.

In Favor of NAFTA
NAFTA (North American Free Trade Agreement) is a treaty between Canada, Mexico, and the United States. It governs the entire North American trade. NAFTA agreement has removed the tariffs between the member countries Canada, Mexico, and the U.S. for goods shipped between them. This has resulted in a good market for U.S. companies in Mexico. Since it implemented NAFTA in 1994, U.S. exports to Canada and Mexico in the next 10 years have almost doubled and it is further growing at the rate of 10% and above. (NAFTA Partners…)

Against NAFTA
Due to the availability of cheap labor, many U.S. companies moved their manufacturing operations from the U.S. to Mexico. As a result, the U.S. lost 1.7 million jobs gaining only 794,000. The job market hit most in Texas, California, Michigan, New York was hit most because companies from these areas mostly moved their manufacturing operations to Mexico. The kinds of industries that moved were mostly textiles, electrical appliances, computers, and motor vehicles. (Disadvantages of NAFTA)

Answer 3.
Smuggling is defined as the import or export of goods without paying legitimate duties on it to the state.
It is true that when the country bans an import, smuggling will increase. However, smuggled goods will destroy the market for domestic goods. Domestic industries will lose the market to the smuggled goods reducing corresponding employment for the natives. Besides, the state will lose taxes, and duties on that in terms of excise and vat. Local bodies too will lose income in terms of local duties. It is an injustice to the law-obeying citizens. The government will make up for those losses by levying taxes on other goods and services so, in turn, the burden comes back to the taxpayers and consumers only. Thus, smuggling does not do any consumer welfare rather a few people who participate in smuggling activities directly or indirectly (even by consuming smuggled goods) get benefitted at the cost of the vast majority who neither consume nor participate in the trade. As a whole, it cannot be construed as doing any consumer welfare.

Answer 4.
Protectionism is used as strategies by the state to protect its goods, industries, or businesses from unfair competition. This is out rightly criticized by free-trade proponents such as Adam Smith and alike. A lot has been said in favor of free markets to achieve market efficiency and the lowest cost for consumers. Protectionism is always dear to local groups because in a way that protects their interests (read inefficiency) against foreign goods. A farming lobby made up of several million in numbers will welcome the state policies protecting them from the imported stuff that sells at a lesser cost resulting in the farming lobby supporting the protectionists (read rulers). Similarly, labor lobby (read trade unions) will openly support protectionist laws safeguarding them, though free market proponents say the market should be allowed to move freely and settle on its own with no interference from the state. In theory, free market proponents always win arguments through their economic theories and models but in reality, it is the protectionists who garner the support of different lobbies and win their votes.

Answer 5.
All economists agree with the basic theory that trades between countries is done for mutual gain. It is a fact that when two countries trade as per the law of comparative advantage, some particular firm or worker may be hurt by imports, but the nation's economy, as a whole, gains by trade because more output deploying the same input is achieved.
The argument that works in a developing country is exploited and therefore American consumers should not import has many flaws. The wage rate of workers in developing countries is indeed less but at the same time, their output also is low. Does it mean that American workers were exploited during those earlier days of the industrial revolution? Nations pass through different stages of economic development from underdeveloped or developing states to developed states and so progresses the wage rate of workers in any country. As the nation progresses in terms of GDP, the worker's wage rate too marches ahead.

Simply, boycotting goods made by those countries is not going to solve the problem of America. On the contrary, if the country starts making those goods, the nation will be wasting its resources (workers, capital), which otherwise could have been better utilized based on comparative advantage theory. (The Theory of Comparative…) Read More