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Free Trade and its benefits and costs

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Are you for or against free trade? Are you for or against NAFTA? What is the economic basis for trade? Explain the underlying facts that support free trade and give an example of a good that you purchased recently that is based on resource differences. What are some examples of goods that the U.S. has comparative advantage in producing? Take a look at the tag of the shirt/dress/pants you are wearing today. Where was it made? Anyone wearing "Made in America" items of clothing today? We sometimes hear people say "Buy American." Why don't we? What is the basis of international trade? What are the benefits and the costs? Under what conditions would you advocate for trade restrictions?

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Solution Summary

Free trade is a welfare creation in general. Countries should divert their resources producing goods that they are having comparative advantage and import other goods. All countries involved in trade will be better off. However, some industries should be protected for strategic reasons, such as security, job protection and food security.

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You should tackle this question first by looking from the perspective of welfare creation from trade. According the absolute advantage theory of Adam Smith as well as Ricardo's theory of comparative advantage all parties involved in specialization and trade will be better off. In this sense, free trade is good. It promotes trade by removing all trade limitation or barriers. NAFTA is the regional initiative for trade to support the long term goal of WTO.

The basis for trade is cost advantage that will allow specialization. This cost advantage can be due to factor endowment such as the ...

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