Why Free Trade Works

Last week I attended a luncheon hosted by the Global Business Club of Mid-Michigan, which focused in part on the importance of free trade. Erik Magdanz of the U.S. Department of State was the keynote speaker, and he had sparked my interest in some current free trade issues. One statistic in particular caught my attention – in 2006, countries that the United States has free trade agreements with accounted for only 7.5% of world GDP, yet they accounted for 42.6% of U.S. exports.

I know the other side of the story - opponents of free trade voice concern over the potential for domestic job loss that can occur when a low-cost producer is included in a free trade agreement. It’s a logical point of view, but the arguments of protectionists fall short in my opinion. Studies in the United States have shown that there is no statistical correlation between imports and jobs. Furthermore, the increase in exports allowed by greater access to foreign markets serves as a boon to the domestic economy.

Erik also touched on the Asia-Pacific Free Trade Agreement, which is tearing down trade barriers between Brunei, Chile, New Zealand, Singapore and the United States. As more and more of these free trade agreements are being established around the world, we are progressing towards the reality of a truly global economy. In my humble opinion, the increased flow of capital and goods allowed by this progression will be a critical component of recovery from the current economic crisis.

If you are interested in learning more on free trade, check out our Regionalization and Trading Blocs module.