globalEDGE Blog: International Impacts of New Free Trade Agreements

International Impacts of New Free Trade Agreements

This past week, the United States passed a trio of free trade agreements removing trade barriers with the countries of Panama, South Korea, and Colombia. The free trade agreements will have many impacts on international trade tendencies between these countries as the pacts will essentially eliminate tariffs faced by exporters in all four countries. Exports of each country are expected to rise as a result of the agreements and many businesses small or large will be able to compete in new markets abroad. The trade relationships between each country will dramatically change as the new trade agreements mark the biggest opportunity for exporting businesses in decades.

South Korea is the seventh largest trading partner of the United States and had nearly eighty billion dollars in trade last year. With the new trade agreement in place this number is expected to increase greatly. Other economic factors will also be affected as both countries are claiming many new jobs will be created as a result of the free trade agreement. Impacts can be seen on the global competition level as well. The new trade agreement with South Korea will have major impacts in the economically dynamic Asia Pacific region as the United States and South Korea look to compete with an increasingly assertive China. Japan also has concerns that South Korean competitors, especially automobile companies, will draw U.S. customers away from Japan as the new trade agreement eliminates the costly tariffs on South Korean goods. This may cause Japan to consider signing future trade agreements down the road.

The free-trade deal also shows an important trend occurring in the international business world today. With many developed economies facing the risk of returning to a recession, many nations are turning to emerging markets as sources of exporting and trade growth. The new free trade agreements exemplify this trend as both South Korea and Colombia are considered emerging markets. These markets may be smaller than others but they are growing at a steady pace making South Korea, Colombia, and other emerging countries ideal for export growth. Free trade agreements can also benefit emerging markets as well by helping increase their economic growth rate. Panama’s President Ricardo Martinelli said that the trade agreement would help attract foreign investment and increase commerce contributing to the creation of many new jobs. This in turn would help the economy grow at a much faster rate.

International trade is greatly affected by free trade agreements as barriers limiting commerce are taken down allowing businesses to compete easily at the global level. Trade relationships among countries will grow and exports will rise with new trade agreements now in place. As economies become more intertwined with each other and globalization increases, trade agreements provide a great way to ensure business growth abroad. It will be interesting to see the economic and international trade impacts caused by the passing of the three new trade agreements. If results are successful, other countries might strongly consider free trade agreements as a way to stay competitive at the international business level.

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