Macro

International trade is an economic phenomenon is a strategy that has taken the experiences of many countries in the world.  Between joining and not joining globalization that promotes international trade few will disagree that joining is the better option.

This paper seeks to analyze and discuss the manner that greater international trade benefit or hurt the US economy, by identifying likely sectors which will benefit or suffer from expanded international trade, the good or bad reasons for expanding the NAFTA to into the Central American Free Trade Agreement (CAFTA) and finally to make a conclusion in sum, whether  expanded international trade is really to be a good or a bad thing for the United States. In so discussing the to topics, the paper incorporates in detail, five of the concepts from Economic Concepts section.

Analysis and Discussion:

Expanded international trade aims to promote free trade among nations. For the USA, having the NAFTA and CAFTA as just examples of more definite agreement between or among nations to promoted the trade between or among them.  The WTO is actually a bigger organization that promotes the same purpose. The seeming aim therefore of free trade agreements and America under the NAFTA and CAFTA may have other reasons that US has in mind but for the purpose of this paper, the economic benefits for the US as simply undeniable.

The greater international trade and the US economy:

Greater international benefit rather than hurt will go to the United States because the United States could produce more than it consumes.  It is being net producer should have been reflected in its trade balance which should have reflected a Surplus Trade Balance but over the years the United the states have always bee in trade deficit… What makes in interesting for America is that despite the trade deficits over the years since it has imported more than it has exported, its gross domestic products over the years have still been increasing over the years.

Viewed from the whether its people have benefited from the high GDP over the years, it could be argued that whether the trade balance is surplus or deficit, it is favorable to the United States. As how does this happen, could still be explained  the fact that many countries make investment in US dollars in term of US stocks and bonds and even in currency.  This reaction of countries seems to put the US almost always in a better position.

The net effect for the US despite the trade deficit is the gains from as translated in terms of better foreign exchange as against other countries. Again on this angle, although strong dollar as against other foreign currencies would have made US in a better position, devaluating the same could still result to the US still winning the net effect of things.

On this note, Samuelson (2004) said that a sliding dollar would have three possibilities:  The first one is that the United States wins and no one else loses if a falling dollar incites the “U.S. economy by increasing exports and restraining imports.” This will have the effect of Surplus industrial capacity which will keep the inflation low. Samuelson however believes that under this scenario, Europe and Japan don’t suffer much, because the ongoing global economic recovery gathers strength and cushions export losses

The second possibility is for the second, the United States and China to win while Europe and Japan lose. This happens because China keeps its currency, the renminbi, fixed to the dollar, and that it also gains competitive advantage when the dollar drops. This is further supported by the fact that China stabilizes the renminbi by investing surplus dollars in U.S.

Treasury securities rather than selling them for local currency.). This however will depress exports of Europe and Japan and destroys their economic recovery and then protectionism rises.  The third although possible to happen be remote to happen that is the dollar “crashes” and that everyone loses. This happens when foreign investors dispose of their U.S. stocks and bonds, as values weaken in terms of their currencies which will trigger massive selling (Samuelson. 2004)

As to how the US does it depends on it monetary policy. The US government through the Federal Reserve Bank can influence the foreign exchange market in the world because of the bigness. Using the power of the Reserve Bank, it can increase interest rates hence attracting many holders of other currencies to buy the US dollar and this will again put the value of the US the dollar stronger despite fact that the US has have may trade deficits in terms of more imports as against its exports.

The sectors that will get affected by expanded international trade:

There are sectors that benefit and some which will suffer from the expanded international trade. To prove such effects, it is was reported that thousands of US jobs were lost due to NAFTA. Scott and Ratner (2005) blamed the rise in the U.S. trade deficit with Canada and Mexico through 2004 for the lost of more than a million since NAFTA was signed in 1993. Jobs displacement occurred in every state and major industry in the United States and that more than half those lost jobs were in manufacturing industries.” The US may have lost in terms of jobs but it may have won in terms of more investments made in the US and in terms of cheaper goods that have entered and the US where its citizens benefited.

Expanding the NAFTA to into the Central American Free Trade Agreement (CAFTA):

The issue of whether I would be in favor of expanding the NAFTA into the CAFTA appears to depend on what is the purpose of this organization.  The main issue is whether free trade is better for America.  Again on the basis that America produced more than it consumers it is always better to for America to expand NAFTA to CAFTA.

Zoellick (2005) said that if CAFTA is voted down, the region’s poor in Central will not improve their lot but instead, a door to upward mobility will be slammed shut. The US is doing not only free on economic reasons but also for political reasons since it believes that by generating employment it lessens problems to society.

In sum, expanded international trade is a good for the United States:

Boyes, et. al (2003)  said that the US need to be the leader in strengthening the world trading system to promote freer, fairer trade and consequent efficiency gains. Most urgent is for the U.S. to improve its diplomacy within the Doha Round of the ongoing World Trade Organization talks. They even recommended that the U.S. should make concessions to developing countries in agriculture and in intellectual property relief for critical medicines so as to successfully extend and improve the more important multilateral system under a free trade.

By so adopting and other public policy actions, Boyes, et. al (2003) believes that US will maintain its long-term strength in its economy.  By so adopting freer trade as a rule for the US, it necessary has to turn its back against protectionism and this is the antidote to freer trade.  Boyes, et. al (2003)  explained that “protectionism and isolationism aim to maintain advantage in particular industries and professions, but other nations can and have emulated and bested the U.S. in selected and targeted areas, and they will continue to do so.”

They also believe that “the strength of the U.S. is not to found in isolation from globalization. The nation’s strengths are instead its ability to adapt to change, its ability to attract foreign capital, and its ability to attract the best and brightest from across the globe.”

Conclusion:

We have found that the US will benefit more from greater international trade than not joining than not joining. The simple of joining international trade is the fact that it produces more than it consumes.  There is however some sectors that will likely benefit and some which will suffer from expanded international trade because it could not be that America monopolizes all the knowledge in the world.  As it opens its economy, there are industry sectors where America is not good at but it employs so many people.

When we say, America is not good at certain industries, we are saying that America is simply not efficient economically that other nations are simply better than it that America could acquire it at a lower cost, hence it should leave America to source the industry outside and instead concentrate on industry where it is good or in industries where is has potential for growth. The industries that it is good are on agriculture while an industry where it is not good at is on services of some professional like those of nurses.

Since free trade is better to America as a rule, expanding the NAFTA to into the Central American Free Trade Agreement (CAFTA) must be deemed to be a better option. In sum, I believed that expanded international trade is to be a good thing for America.

Protectionism is no place in America. Its democratic government would be inconsistent to adopt the same since democracy means freedom and freedom means freedom not only to vote in elections but also freedom to excel where its people have the capacity. The US is very reach to lose many things in free trade if one would look at it. Hence it is difficult to see why other developing nations like those in Central America would fail to see the benefits of free trade.

References:

Boyes, et. al. (2003) Lessons From the Past: History Says the Future of U.S. Industrial Competitiveness Is Brighter Than We Think, {www} document URL, http://www.ernestmorgan.com/macro/essay3/boyes120103.html, Accessed June, 2007

Samuelson, R. (2004) A Global Glut of Greenbacks, Newsweek
January 5, 2004,  {www} document URL, http://www.ernestmorgan.com/macro/essay3/samuelson010504.html, Accessed June, 2007

Scott and Ratner (2005) Issue Brief #214, NAFTA’s cautionary tale
Recent history suggests CAFTA could lead to further U.S. job displacement, , {www} document URL http://www.epinet.org/content.cfm/ib214, Accessed June, 2007

Zoellick, R.  (2005), CAFTA Is a Win-Win, The Washington Post,  , {www} document URL http://www.ernestmorgan.com/macro/essay3/zoellick052405.html, Accessed June, 2007